PPG Industries Inc (PPG) 2010 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the second quarter 2010 PPG Industries earnings conference call.

My name is Francine and I am your Operator for today.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mr.

Vince Morales, Vice President, Investor Relations.

Please proceed, sir.

Hello, this is Vince Morales, Vice President for Investor Relations for PPG Industries.

Welcome to PPG's second quarter 2010 financial teleconference.

Joining me on the call today from PPG Industries is Chuck Bunch, Chairman of the Board and Chief Executive Officer, Bob Dellinger, Senior Vice President Finance and Chief Financial Officer, and Dave Navikas, Vice President and Controller.

Our comments relate to the financial information released on Thursday, July 15, 2010.

Visual supporting this briefing may be accessed through the investor center on the PPG website at www.ppg.com

As noted on slide number two, our prepared remarks and comments made, and subsequent question and answer session, may contain forward-looking statements reflecting the Company's current view about future events and their potential effects on PPG Industries' operating and financial performance.

These statements involve risk and uncertainties that could effect the Company's operations and financial results, and as discussed in PPG Industries' filings with the SEC, may cause actual results to differ from such forward-looking statements.

The Company is under no obligation to provide subsequent updates on these forward-looking statements.

This presentation also contains certain non-GAAP financial measures.

Pursuant to the requirement of Regulation G, the Company has provided in the appendix of the presentation material reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

The agenda for today's discussion is noted on slide number three.

Now, let me introduce to you the Chairman and CEO, Chuck Bunch, who will provide the opening remarks.

Thank you, Vince and welcome everyone.

This afternoon, I will provide a brief overview of our second quarter performance, Bob Dellinger will review details of our financial results, I will make a few closing remarks, and then we will take questions.

PPG Industries' strong results this quarter benefited largely from a 10% increase in volumes.

The breadth of geographies and end use markets that we serve is enabling us to leverage continuing positive momentum in global industrial demand.

The performance of our portfolio is being elevated by higher industrial activity and strong demand across Asia Pacific and Latin America, which is more than offsetting weak construction in North America and Europe.

Our performance and growth occurred consistently through the quarter and all of the major regions contributed.

Our earned per share were close to 2008 pre-recession levels as we leveraged the volume growth with our now lower cost structure.

Our earned this quarter were aided by an improved sales mix in some of our top performing businesses, such as aerospace, auto refinish and our optical and specialty materials segment.

As a matter of fact, both optical and specialty materials and performance coating segments posted record earnings results.

Our optical segment posted sales growth rates approaching 20% and it remained our top operating margin segment.

Performance coatings delivered record earnings as margins grew by over 200 basis points.

Our auto refinish, aerospace, and protective and marine coatings businesses, all delivered increased sales, which more than offset the impact of lower volumes in our US architectural coatings business.

Our industrial coating segment continued to approach historical earnings levels.

In the second quarter, the segment delivered 12% operating margins for the first time since 2006.

Segment volume growth was more than 25% versus a recession-weakened prior year period.

We achieved 40% growth in our automotive OEM coatings business, easily out pacing the 25% year-over-year global industry growth, and we continued to realize double digit percent growth in our general industrial business in the emerging regions.

In architectural coatings EMEA, our volume performance was consistent with the past several quarters, declining about 5%.

Currency conversion negatively impacted sales and accounted for half of the earnings drop.

Results in our commodity chemical segment improved nicely versus last year, on higher demand and lower input costs.

Most notable was the $50 million improvement versus the first quarter of 2010, due to improving pricing, higher demand, and lower natural gas costs.

Our glass segment benefited from substantially improved performance in our fiberglass business, including improved equity earnings from our Asian joint ventures.

The strong and continued improvement in the Company's financial performance this past quarter occurred despite demand that still remains more than 10% lower than 2008 pre-recession levels.

Our strong performance clearly reflects the benefits from our improved business portfolio along with our lower cost structure.

We are positioned for further earnings growth opportunities, as the global economy continues to recover and through utilization of our strong balance sheet.

Now, I'll turn the call over to Bob to provide additional details on our financial performance for the quarter.

Thank you, Chuck.

I will begin by reviewing the year-over-year bridge of our second quarter sales, which is detailed in the Company's slide pack on slide number four.

Sales improved about $340 million, or 11% versus the second quarter of 2009, which was negatively impacted by the global recession.

Overall pricing improved modestly, by about $20 million.

Higher prices in our coating segments offset lower pricing in the glass businesses and more specifically in our performance glazing business which remains impacted by weak US construction markets.

Year-over-year pricing was also lower in commodity chemicals; however ,pricing levels in commodity chemicals this quarter have moved higher versus the first quarter 2010.

Compared to last year, currency conversion reduced sales by $9 million as the impact of a much weaker Euro was nearly offset by stronger currencies in Asia, Latin America and Canada.

As Chuck mentioned, we realized a strong increase in volumes.

This improvement of more than $300 million was driven by higher global industrial activity in all regions of the world.

Weaker construction markets in the mature regions of Europe and North America detracted somewhat from our volume growth.

As illustrated on the graphs, our year-over-year volume comparisons this quarter were similar to the first quarter, despite a more difficult comparison period in 2009.

As detailed on the lower right chart, in comparison with 2008 pre-recession levels, we remain down more than 10%, also comparable to the first quarter.

Further details on our sales are contained on the next slide.

As you can see, the emerging regions of Asia Pacific and Latin America are continuing to grow faster than the developed regions of the world.

Asia Pacific continues to be a considerable growth platform for the Company, but primarily by our industrial businesses, serving both exports from the region and local consumption within the region.

While there is concern regarding property value appreciation in China, as detailed on the top right chart, only 3% of our total Asian sales stem from China architectural coatings.

In the United States and Canada, we continue to experience solid growth, again driven by higher industrial activity, along with improving commodity chemical demand.

However, our business selling into the construction markets declined versus the prior year due to the continued weakness in those markets.

Similar to last quarter our volumes in Europe increased slightly versus the prior year's quarter, and, as we expected heading into the year, the region lags the other major global regions in overall pace in economic recovery.

However, volumes remain stable as our industrial businesses continue to benefit from higher activity levels, including more exports from the region, which is offsetting the continuing modest weakness in the construction markets.

Looking ahead for the Company, the global economic recovery began to take hold in the second half of 2009, and as such, our second half comparable periods will be more difficult.

Also, the third quarter's traditionally a slower quarter seasonally in several of or businesses, and we expect this historic trend to continue this year.

However, for the second half of 2010, we do anticipate the benefit from the continuing of the macro trend of the gradually improving global industrial activity and expect construction markets to remain sluggish.

Our adjusted earnings per share is presented on the next slide.

A reconciliation of these amounts to our reported earnings per share is included in the appendix to today's presentation materials, which is available at the investor center on our website at www.ppg.com.

In the quarter, our adjusted earnings per share was $1.64 versus $0.91 last year.

Clearly, the largest contributor in our improvement was the benefit from higher sales volume.

Additionally, our lower cost structure including the savings from our prior restructuring actions and lower tax rate contributed heavily.

While our selling prices were higher, they did not fully offset the impact of higher coatings' raw material costs.

Coatings raw materials began to inflate early in the year due to higher demand and several supplier outages and that inflation increased in the second quarter.

In total, for our coatings businesses, cost rose mid-single digit percents, although the rates differ by region and by business.

Further inflation pressures have subsided and we're now working to offset the transitory margin compression in several business units with additional pricing initiative.

Currency conversion also negatively impacted our earning.

Stronger currencies in Asia, Latin America and Canada, offset a weaker Euro within our business segment; however, our corporate costs were impacted by just over $10 million as our losses from converting balance sheet exposures this year compared with gains in the second quarter of 2009.

Lastly, we lowered our 2010 tax rate to 28%, based on the geographic mix of projected full year results.

When compared with the Company's previously estimated 2010 tax rate of 30%, the lower rate added $0.07 to our second quarter results, including $0.02 based on the catch up of reducing the rate for the first three months of 2010.

Our second quarter 2009 tax rate was 33%.

Moving now to review our individual business segments, let me start on the next slide with performance coatings.

In the quarter, sales exceeded $1.1 billion, growing by $45 million versus the prior year's period.

Overall volumes were flat; however the segment experienced positive currency conversion, and delivered higher selling prices which were focused on countering inflation.

Earnings advanced by $32 million versus the prior year to a quarterly record of $190 million.

Operating margins expanded 230 basis points, as our continued strong cost controls supplemented the improved sales mix resulting from the performance of several of our top performing business units.

Our automotive refinished business continued to recover from last year's recession, and customer de-stocking.

Aided by an improved general economic recovery and higher miles driven, the business accelerated to double digits sales growth this quarter, excluding modest favorable currency impacts.

Sales also grew in our protective and marine and aerospace business.

These businesses both have a sizable aftermarket component, serve late economic cycle industries, and did not experience anywhere near the same degree of volume decline during the recession as most of our other businesses.

Combined sales for these businesses this past quarter were up low single digit percents versus last year, reversing the trend of very modest sales trends that we experienced in the last four quarters.

We expect the stable nature of these businesses to go unchanged.

Volumes in our architecture coating, America and Asia Pacific business decline mid-single digit percentages versus last year, but the trend was modestly improved versus year-over-year results in the first quarter.

Results in our national accounts or "do it yourself channel" once, again, outpaced our Company-owned stores.

US volumes continue to be hampered by a restrained, commercial construction activity and continued depressed levels of residental housing activity.

However, selling price actions we initiated in the business earlier in the year have been successful and we are selectively seeking additional price for the second half of the year in an effort to offset raw material inflation.

Looking ahead, we expect the overall construction markets in the United States to remain at low historic levels for the foreseeable future.

Overall performance coatings have continued to deliver strong results that are being further enhanced because some of our top performing businesses are growing more rapidly.

Also aiding this segment results is the size of our Asian business, which is now the second largest region for this segment and it's delivering the highest growth rate.

We expect the improved business and geographic mix to continue to aid second half results.

The industrial coating segment results are on the next slide.

As you can see, this segment financial performance has continued to strengthen.

In the quarter sales grew 27%, or about $200 million, to $939 million with nearly the entire gain coming from volume growth when compared with last year's recession impacted results.

All regions participated in the strong year-over-year growth and importantly sales levels in each region were consistent with or higher than first quarter 2010 levels.

Earnings improved by $84 million to $112 million and our operating margin is right below 12%.

In addition to the higher volumes, lower costs from both cost management and restructuring related initiatives also contributed.

Higher raw material costs somewhat tempered these earnings improvements.

Automotive coatings, our largest individual business in the segment experienced 40% volume growth in comparison with last year's very low level.

Our growth outpaced the overall global auto industry production figures, which grew by more than 25%, versus weak prior year global production figures.

Sequentially, industry production advanced about 6% versus the first quarter of 2010.

In general the industry continues to match production with sales, and inventories remain at low levels from a historical perspective.

Sales for this business in each region reflects strong year-over-year sales growth, led by our US region which posted 75% growth on both end use market recovery and market share gains.

The third quarter is normally a seasonally slower quarter due to plant automotive OEM facility shut downs, and we expect a similar, but less acute pattern this year.

Our industrial coatings business unit delivered solid growth levels around 20%, further reflecting an improving general industrial economy in all major regions.

Both Asia Pacific and Latin America growth was around 40%, similar to the first quarter.

Growth in the mature regions also was consistent with the first quarter, between 7% and 10%.

All of these sequential comparisons are despite a more difficult comparable period in 2009.

The packaging coatings business also delivered moderate sales growth and solid financial results.

This business remains a consistent performer.

Overall, the industrial coatings segment continues to return toward historic operating margins.

The absolute earnings we achieved this quarter were our highest second quarter results in a decade.

Despite sales volumes, that still remain nearly 15% below pre-recession 2008 levels.

Looking ahead, we anticipate traditional seasonal impacts to result in lower third quarter sales.

We will keep our cost focused, and we remain comfortable with the prospect of continuing gradual recovery in the global industrial market.

Results for our architectural coatings, Europe, Middle East and Africa, or EMEA business are on the following slide.

Sales in the quarter of $500 million were down $27 million versus last year's period and earnings declined $5 million.

Currency conversion was a notable factor in the sales decline and accounted for half the earnings decline.

Over the past year, the results of this business have been stable, and this this pattern held true during the quarter.

Volume trends remain consistent with recent quarters, down mid-single digit percent due to continued sluggish housing and construction markets in the geographies we serve.

As illustrated on the bottom right chart, our geographic footprint very little to no exposure in southern European countries and other countries which have experienced the most significant declines in construction, including those such as Portugal, Italy, Ireland, Greece, and Spain, which combine account for only about 1% of segment sales.

As we have traditionally shown included on the slide or the earnings before interest, taxes, depreciation, amortization, or EBITDA, we believe EBITDA is a relevant measure for this segment given the ongoing non-cash amortization expense from the SigmaKalon acquisition.

As detailed, EBITDA margins were once, again, comparable this quarter versus last year.

Looking ahead, we anticipate similar business trends will remain and based on current exchange rates, we expect currency conversion to again detract from year-over-year segment results in the third quarter.

Our optical and specialty material segment results are detailed on the next slide.

Versus the prior year, second quarter sales surpassed $300 million, up $46 million or nearly 20% volume growth.

Earnings grew by 41% to $86 million, a new record for this segment.

Both business units' optical products and silicas, continued to benefit from improved overall demand, new product sales, and product line extensions.

Our optical product sales are now approaching the peak levels we achieved directly following the introduction of our Generation VI Transition Lens product.

Our operating margins were consistent with the past quarter and remained at more than 28% through the first half of the year, which as detailed on the chart compares favorably versus prior year's, due in part to the benefits of restructuring actions completed in 2009.

Looking ahead, the third quarter is typically a slower quarter seasonally, and we anticipate this trend will continue this year.

The next slide just displays our commodity chemical segment results.

Compared with last year's second quarter, sales advanced by more than $40 million, and earnings grew by $11 million.

Improved demand more than offset lower caustic soda pricing and our higher capacity utilization positively impacted manufacturing cost.

In comparing results this quarter versus the first quarter of the year, we delivered significant improvement as the businesses rapidly recovered from trough earning levels.

Sales advanced $32 million as higher volumes were coupled with higher prices for the ECU, which is an aggregate of chlorine and caustic soda prices.

Segment earnings jumped by $50 million as sale gains combined with lower natural gas costs.

Despite our higher production rates increased demand has cut our inventory in half versus last year.

Looking forward, we expect modestly higher natural gas unit cost in comparison with the second quarter, and we are implementing additional previously announced price increases in both chlorine and caustic soda.

Our glass segment results are on the following slide.

Sales were $247 million, up $40 million or 19% due to dramatic improvement in fiberglass volumes, which, in turn, are results of improved global industrial demand.

Segment earnings improved to a $16 million profit compared with a loss of $7 million in the prior year.

The 60% year-over-year increase in fiberglass volumes resulted in improved manufacturing utilization, up to nearly 100% capacity utilization at quarter's end.

Activity levels in the US architectural glass markets both commercial and residential construction hurt by our performance glazing business remained challenging.

Equity and royalty earnings continued to improved during the quarter and we also benefited from lower costs, including savings from the restructuring actions we completed last year.

We are pleased with the positive earnings momentum, and looking forward, we have recently initiated further selling price initiatives.

Let me conclude my are remarks by discussing some cash details, which are on the next slide.

We ended the quarter with just under $800 million of cash on hand, down from last year's $1 billion level.

As we began to deploy our cash in a balanced manner over the past 12 months, we spent about $50 million on capital expenditures during the quarter, bringing our 2010 year-to-date total to $93 million.

We also repaid more than $50 million of debt in the quarter, bringing our year-to-date total to about $200 million.

We don't anticipate any further debt reduction of significance for the remainder of the year.

A quarterly dividend payments, an important part of our long-standing heritage at PPG, were $90 million and total $180 million for the year.

We also spent slightly over $100 million on re-purchasing 1.6 million shares PPG stock.

We have more than 4.5 million shares remaining under our current share re-purchase authorizations.

Year-to-date returning money to shareholders in the form of dividends and buy backs, which is a PPG legacy has accounted for nearly half of our cash usages.

One other cash item is pension contributions, and as we previously stated, we expect full-year 2010 contributions to our pension plans of $240 million and have contributed about $50 million year to date.

For the full year of 2009, we put approximately $450 million in cash and Company stock into our plans, including $210 million in the first half.

Our cash position still remains very strong, especially when considering that due to the seasonality of our businesses, our strongest cash generation quarters are in the second half of the year.

We intend to remain disciplined and balanced with our cash deployment, but with a focus on growing earnings per share.

We are reviewing potential bolt-on acquisitions and also anticipate further share re-purchases will be a likely use of cash this year.

With that I'll you now turn the call back over to Chuck for some closing remarks.

Thanks, Bob.

I will conclude by reiterating a few key items.

Our global geographic footprint and the broad set of end use markets that we serve are continuing to yield benefits.

This was clearly in evidence this past quarter as we leveraged the moderate global industrial recovery.

Our results were aided by growth in emerging regions and an improved sales mix resulting from stronger results in our top performing businesses, including optical and specialty materials, aerospace, and auto refinish.

Our commodity chemical segment rapidly returned to solid profitability, and our glass business delivered mid single digit margins on strong fiberglass demand.

As with the first quarter, we tend to experience solid earnings leverage on higher sales volumes, reflecting the benefits of the structural cost reductions we completed during the recession.

Let me conclude by commenting that I'm encouraged with our earnings recovery and that I believe we remain well-positioned to capitalize on what we anticipate to be a continued gradual global economic recovery.

Also, we are beginning to utilize our strong balance sheet to accelerate growth.

We are currently reviewing several small to mid-sized acquisitions in the $20 million to $250 million range and intend to remain active on share re-purchases.

That concludes our prepared remarks.

Now, operator, would you please give instructions and open the phone lines for questions.

(Operator Instructions).

Our first question comes from the line of Frank Mitsch from BB&T Capital Markets.

Good afternoon.

Nice job, fellows.

Thank you, Frank.

Thanks, Frank.

You'd hardly know that there's concerns about the economy out there.

It's the best result in several years at a minimum in the second quarter.

We've been hearing a little bit about, on the paint and coatings side, the raw materials have become tighter.

I think you eluded a little bit about how the price inflation of raws has outpaced your selling prices.

Can you talk about the availability of raws?

Is that hampering your volumes to any extent?

And I know that, I think Bob mentioned, that you've got some price initiatives underway, selective price initiatives underway in that sector.

Would you anticipate that would fully offset by year's end the raw material inflation that you've seen so far in that sector?

Frank, this is Chuck.

I would say that we had a few spot shortages during the second quarter.

There were a couple suppliers that had unexpected outages or production problems.

It probably shifted some business around for us, but we don't think we lost any orders on an ongoing basis, and, if anything, probably a little of the activity would shift into the third quarter, so availability is not a major concern for us you right now.

And pricing has stabilized in the market for our principle raw materials.

Some of the feed stock costs as we talked previously in propylene or ethylene are actually drifting down, so at this point we don't see supply issues, and we think that raw material pricing has stabilized, albeit at a higher level than we saw it at the beginning of the year.

All right.

Terrific.

And obviously nice job by Mr.

McGarry and his team.

Can you comment a little bit about the pricing that you've realized, the $80 in the second quarter?

I guess you've got $35 to $50 on tap in caustic for the third quarter.

Chlorine $50 on the table for the third quarter.

What are the statuses of -- statuses I don't think is the right Latin term, stati -- that might work, what is the status of that, of those increases, as well as nat gas you indicated was going to be marginally higher, how does that interplay work out as we look at the third quarter?

Well, if I stick with your first part of the question, Frank, the pricing environment in chlor-alkali is firm.

We have now been implementing the $80 that was announced in the second quarter.

The industry didn't get all that at once.

It was phased in over the second quarter and now, with the $35 increase announced in July, we think that this will be implemented on a customer basis, probably taking into consideration at what phase they were in contract, so right now, we do not anticipate any significant problems in implementing the second or this smaller third quarter increase.

Volumes have stayed up on the caustic soda side.

Inventories are low, and we feel confident about the pricing environment for caustic soda.

There has been a price increase initiative in Europe, stable pricing in Asia, so on a global basis, we think we have a solid pricing environment for caustic soda.

On chlorine, there was a $50 announcement here in the third quarter.

That we expect to be phased in over the course of the quarter, depending on contracts.

There's a little more resistance with the PVC customers, but with the other merchant chlorine customers are receiving price increases, so here, too, we feel that the pricing environment for chlorine is stable to firm.

Chuck, if I could read into your tone, it doesn't seem to me like you're a man troubled by the possibility of a double dip coming up; is that fair?

Well, I think, if you recall, you know what we've been through over the last couple of years in the chlor-alkali business, Frank, in our description of our results here for the second quarter, and it's probably been a trend for a little longer, the industrial activity has been quite good.

Strong restarting from recession levels, but the construction markets, especially in the developed regions have been weak.

When we had these same economic conditions here in North America, weak construction markets, therefore weak PVC production, that strengthens the opportunity for firm pricing in caustic soda.

So we have shown in 2007, 2008 that strong industrial activity, while we have weak construction activity, actually helps the merchant players like PPG Industries and it strengthens the environment for caustic soda, so at this point even if we continue this economic environment that we saw in the second quarter, we feel quite optimistic that we're out of the trough for the chlor-alkali business and that we should continue to build on the momentum that you saw from us here in the second quarter.

Terrific.

Thank you.

Thanks, Frank.

Our next question comes from the line of Kevin McCarthy of Banc of America.

Yes.

Good afternoon.

Would you elaborate on the relative strength that you saw in auto OEM versus the industry?

Is that a function of geographic mix in North America and Asia or did you, perhaps, gain share or maybe are aligned with the right brand owners at this point?

Kevin, this is Chuck.

I would say that what we've seen is a good customer mix on the part of our PPG customer portfolio and automotive OEM.

I would say one the biggest up sides for us, though, has been our position in China.

We are the number one automotive OEM coating supplier in China.

We have a broad based customer array, including the global, the global players like General Motors or Volkswagen and also a very good position with the domestic and regional producers, so I would say we have some gain from there.

We're also very well aligned with the German producers now.

That hasn't always been the case for PPG, but if you look at our position with BMW or Mercedes, the German automotive producers have been the strongest in Western Europe.

We're well aligned there.

We're also seeing good growth in Russia, where we have a nice position.

General Motors and other customers here in North America, I think we're well-positioned.

But, I would say the single biggest factor in our volume gains are coming from our position in China.

With regard to fiberglass, I think you mentioned you're operating near 100% capacity at this point.

Is the demand strength there being driven more by electronics or by reinforced plastics there?

And then, you know, given, given the notion that you're nearly sold out, what does the future look like?

In other words, should we anticipate greater pricing power or possible expansions required at some point?

On the two markets for fiberglass, both of them are running equally well, so if you take our reinforcements business, which is primarily supplied for PPG here in North America and in Western Europe, we are operating at a sold out capacity basis.

We are implementing price increases for reinforced products, and we have almost full capacity utilization.

We have one item furnace that we are attempting to bring on here in the second half of the year, so we are sold out in the West, and implementing price increases,

Again, a lot of this is driven by capacity reductions, by ourselves and many of our competitors during the recession, and we think the environment is very solid for the coming years now, because of some of these capacity rationalization.

On the electronics side, which is -- we participate through a large joint venture that we have with Nan Ya Plastics in Taiwan and China.

That business is booming, and we are running at capacity.

There have been a number of significant price increases, and both sides of the business or end use markets, reinforcements and electronics are driving both the volume and the profitability improvements that we see in that business unit that's reflected overall in the segment, so we feel pretty good about fiberglass right now.

Great.

Thank you very much.

Thanks, Kevin.

And our next question comes from the line of John McNulty.

Just two quick questions.

It sounds like you're -- you think the economy and the industry economy in particular is going to gradually keep improving.

Is there any areas where you saw incremental weakness as you went through the quarter?

Incremental weakness as we went through the quarter?

I would say no.

If you look at, geographically, probably the industrial economy that's still growing, but at a slightly slower rate would be Europe.

We are seeing, even automotive OEM production.

We are forecasting a modest volume improvement in the second half.

This would be 5% or below.

The rest of our industrial activity, we think will be up in the second half in Europe, but certainly not as strong as what we're seeing in Asia, Latin America, or even the North America markets.

So right now as we went through the second quarter, we had pre-announced guidance in the middle of June, and we expected, I think, at that time to make, make the middle to higher end of the range, but actually the second half of June finished strongly, and a couple of businesses notably chlor-alkali continued to, continued to accelerate through the rest of the month.

We didn't see any fall off in sales or orders in key markets in Asia or North America, so through the second quarter and now here, starting in the third quarter, we have not seen an inflection point; certainly not down, and the continuation of the current trends that we've talked about in these announcements.

Great.

Great.

Thanks for the color on that.

And then with regard to your architectural business, you indicated that the DIY market was stronger than it sounds like the stores business or the contractor business that you do.

Was it, was it positive in stores negative or were they both negative and it was just a degree of one being worse than the other?

They were both negative for us in the second quarter.

DIY a little less so than the stores or contractor business.

Not appreciably different, although obviously when we go through retailers or independent dealers, those aren't direct sales, sometimes we will move inventory into their locations and depending on when they move out from the warehouses or get on the shelves, we don't always see as regular an order pattern as we would in the stores.

It wasn't an appreciable difference, but we volumed in both places, less so though in DIY.

Great.

Thanks very much.

Our next question comes from the line of Sergei Vasnetsov from Barclays Capital.

Good afternoon.

Hey, Sergei.

Good afternoon, Sergei.

Chuck, if you compare your volume recovery, specifically from the industrial coatings business maybe by large segments and by regions versus the underlying markets, where would you say you're gaining some market share?

It sounds like it was the case in automotive OEM.

Is it true and in which other segment or geographies, if that's the case?

I would say after automotive OEM our view, although again this is a business that goes through two step distribution.

Automotive refinish had a very nice quarter.

We think we are gaining share there, and that is a global business for us, so we're well-positioned in the fast growing regions like China, but we think we're gaining share in that business.

Aerospace, we had a modest volume improvement there.

We're gaining share, although our shares in that business unit are already quite high.

And the other businesses we feel that we have more than held our own, although I can't say at this point, we don't have enough market data from the second quarter -- the other businesses, such as our general industrial business, our protective and automotive marine coatings business, these would be businesses that we felt, we didn't see any appreciable share loss, and it could turn out when we get all the data that these could be either stable to actual market share gains, but certainly automotive OEM, automotive refinish, aerospace, would be coatings businesses where we were gaining share.

Okay.

And when you think about the sources of that share gain, is it close base so you can compete more effectively, do bring some new technology that you didn't have and other people didn't have for the past couple of years?

What is it that allows you to gain some share?

I would say the principle reason for gaining share in these markets is technology and global positions, so if you take automotive OEM, we're very well-positioned globally.

We've worked hard to establish ourselves in markets like China, and not only with the global players, but with the domestic players.

We have a full product array to meet all of their needs.

You know there is a move in automotive OEM to what we would call a shorter or compact processes, where we can deliver cost savings, but provide the same corrosion and decorative protection, so I would say that, clearly, it's global position and technology in automotive OEM.

In refinish, we feel that we have the best water-born or water-based refinish system out there; that's helping us gain share especially in markets or regions where they're going from a solvent-based to water-based mandated system, so we think we're well-positioned there.

And we have always been not only the market leader, but the technology leader in our aerospace products, and so I think in all three of these, it would be global position, but technology.

We have a better cost base, certainly, in businesses after our restructuring, and I think you see the effects of that, but certainly we're not trying to win any business by just pursuing a lower price strategy.

Okay.

Thank you.

Thanks, Sergei.

And our next question comes from the line of John Roberts from Buckingham Research.

Hi, John.

Hi.

I'm a little surprised that DIY North America volumes were down.

You have easy comps there, there's not a lot of commercial exposure.

I thought there was some negative weather in March quarter that might have benefited the June quarter and you had the housing stimulus that drove turn over very high during the quarter?

Well, if you look at the DIY segment --I haven't seen the big box retailers comps yet, but if you remember, our, our first quarter numbers were very weak in January and February, then we had a very strong surge in March that showed some strength for us in the first quarter.

We also had some weather, certainly in the second quarter.

I don't know across the country, but certainly here in the northeast, June was a very wet and rainy month.

I would say that it's a little early for us to see all of the market data out there, but, certainly, we don't see the same momentum on either the DIY or our Company-owned stores side, although we're working hard at it.

Taking costs out.

But there's just not as much market strength as we would have hoped.

Okay.

And then secondly on slide number four, where you show the sales volume index, could you just provide me maybe some of the outliers, so -- optical is probably at a new high, fiberglass sounds like it's at a new high, and then you have some things that must be down still 20% from their 2008 level like commercial construction coatings or some of those.

Could you -- you know most thing are probably near the average, but where are the outliers?

Well, I would say the weakest business that we had would be in our glass operating or reporting segment and that would be not the fiberglass business, which drove a lot of the improvement, but it would be that performance glazings business, and that is you primarily a North America commercial construction and North America residental construction play.

So that was probably the weakest business out there from a volume standpoint for PPG.

The other two businesses that were weaker from a volume standpoint, we talked about architectural and EMEA, down about 5% and the North America architectural business is similarly down.

So I would say of the businesses in our portfolio, those would be the three and coincidently they are all construction related here in the developed economies in North America and Europe.

Our next question comes from the line of David Begleiter, from Deutsche Bank.

On industrial, on your industrial businesses, what's your visibility and order book?

I know you're expected continued growth, but what do you actually have booked for the next period of time?

And how typical is that?

I would say, you know as we've looked, let's take the biggest business in that segment which is automotive OEM.

We have visibility typically two to three months out, and there's good forecasting, not always completely accurate for the full year, and if you take the North America business, we started this year thinking that North American auto and light truck builds would be a little under 11.

Then I think at this meeting three months ago, we said, "hey, 11 to 11.5," and now I'd say it's probably 11.5, maybe 11.6, so you know we have continued to see, you know, a good momentum out there inventory levels are in balance, so our forecast, if anything, have moved up slightly.

In Europe, we aren't expecting as strong a second half, but there is still volume growth as I've mentioned earlier.

Russia is better than we thought.

The German producers are stronger.

In China, even though we're probably not going to have the easy comps that we had in the first three or four months of the year, there is still good growth in Chinese automotive OEM productions, so that we're not going to be plus 40% as we were in the first three or four months, but we're still, we were saying all along that we thought that production could be up 15% to 20% in China for this year.

We're still sticking to that forecast, probably at the upper end of that.

And we haven't seen things appreciably slow down in China at this point, so I would say in automotive, we're not seeing any significant deviation from what we've been looking at.

On the industrial side, that is a whole range of products, including appliances, consumer electronics, coil and extrusion, and I would say that the business has been solid, if not great, like automotive OEM.

We haven't seen any inflection points yet.

Certainly as I've talked about our electronics and fiberglass is booming, so at this point we are watching, because obviously there's some negative sentiment.

If you look at the media and what they're projecting for the second half.

We have talked about the one market that we thought in China may be overheated, which is that Chinese construction, especially residential construction market, we have much less of an exposure there.

We have an architectural business in China, but it is the smallest of our major coatings businesses.

We're doing fine there as well, but we are watching that one, so at this point we have not seen an inflection point.

We're watching, and we're a little cautious because of some of the headlines out there, but you know our businesses continue to perform well, and we haven't seen a drop off yet.

And Chuck, just on raws versus price in Q3, would you expect your prices to now exceed your raws?

If they would, it would be, I think slight, I think we are trying to implement price increases now, and as I told you stabilizing, in a stabilizing environment for coatings, raw materials in the third quarter.

As I said, we may, we'll recapture what we haven't been able to get, whether we over-capture it, I'm not sure at this point.

But I think, you're going to see a more stable environment going forward, and we will catch up a little bit here in the third quarter on pricing.

And, for Bob -- Bob, on your tax rate, I know that geographic mix has shifted, lowered your tax rate for this year.

Given the continued growth in those regions, do we stay at 28% in 2011 as well?

At this point, I would stick with that.

We certainly looked at this since we got a new forecast in, but right now I think that's pretty confident to model 28%.

We saw strength in Europe in our industrial base, at an attractive tax rate.

We had Latin American turn profitable and we're offsetting those profits with net operating loss position, so those were favorable to our rate, and, yes, I feel pretty comfortable with 28%.

Thank you.

Thanks, David.

Our next question comes from the line of P.J.

Juvekar of Citi.

Hi, Chuck.

Hi, P.J.

Disappointing to see North American architectural volumes down.

Correct me if I'm wrong, DIY was up last year.

I'm wondering why is it going down this year and is it the case that maybe you lost share at those?

I'd say it's a little early for us to say.

We certainly don't feel that on the state side, on the paint side.

It depends on the promotions during the quarter.

We know that we have the mid- and lower price points.

That was a more favorable position during recession environment.

It may not be quite as favorable now.

We are promoting our products adequately.

We haven't seen anything on the paint side yet that would show us we have a loss share, but I would say that overall, it's still been a sluggish environment out there.

And again, depending on when we have our sales into the retailers, it doesn't always match up on a quarter to quarter basis with the sales out the door.

Okay.

And you had a price increase in your stores earlier in the year.

Did that stick in this environment and then can you talk about your next price increase that you mentioned?

Yes, we did have a price increase in our architectural stores business in the first quarter.

That was eventually followed by the other competitors in the market.

At this point, we have not announced another price increase in our stores business.

And so we are monitoring the market, and our position and depending on if we continue to see this stable raw material pricing environment, then we will not necessarily initiate a price increase in our stores business.

And then, if you take a step back, can you just talk about your outlook for the 2010 painting season?

Just talk about stores versus big boxes, and what are you seeing on the remodeling activity?

Well, I think what, what we're seeing is a continuation of the trends that we've seen over the past certainly year and a half.

We have not seen a resumption of strong volume activity in our stores business, which is a contractor oriented -- these are contractor oriented stores.

This is the commercial contractors as well as the residential painters.

I don't see any reversal of the trend that we had commented on last year.

If anything, maybe the resident shall piece is slightly stronger, but more than offset by the continued weakness on the commercial side.

DIY, I don't have all of the from the big box retailers that compared, but not only in their same store sales, but their paint department sales, but I would say on balance, the DIY is probably a little bit stronger than the contractor business, and I would think that these will be confirmed as we go through the third quarter and see some of our, some of the major retailers releasing their same store sales growth.

Thank you.

Thank you very much.

Thanks P.J.

Our next line comes from the line of Dmitry Silverstein with Longbow Research.

Good afternoon, gentlemen.

Congratulations on a very strong quarter.

A couple questions, although most of them have been answered.

Number one, you mentioned that you are going to have a little bit of a seasonal slow down in the automotive build rate sequentially.

On a year-over-year basis, how do you look at this business given the cash for clunkers program in both the US and Europe last or is that not concern given how strong your position is in China and how rapidly thing are growing there as well as your market share gains that you've been able to get over the past year?

I would say on the automotive OEM side there were scrappage programs in just about every region and country in the US, if you look at the cash for clunkers specifically, it was a third quarter 4 quarter 2009 was to the comparable for us in 2010, 2009 will be not as good as second quarter, because if you remember, the second quarter of last year, that's when we had the bankruptcies of GM and Chrysler, that was probably the industry at its weakness so obviously on a year over year basis, we're going not show the same degree of improvement in the second half that we think that sales will continue to improve versus last year's level, without cash for clunkers.

In Europe, again, the eastern European countries, Russia, they're coming out of their recession rather well, and production there is growing.

Germany, benefiting, I think from a stronger German economy and export opportunities with that weaker Europe, so I think even without the scrappage programs that a number of European countries had instituted last year, we're still going to see modest sales growth in Europe.

And in China, they did have some incentives in 2009, especially for smaller cars.

Most of those are projected to decline in the second half or certainly into 2011.

But right now, we see the growth rates moderating somewhat in China in the second half, again, because of the strength of 2009, but still solid growth in that market, even if some of the incentives from the Chinese government for the small vehicles are withdrawn.

That's helpful.

Thanks.

You talked about the importance of fiberglass business to the profit improvement your seeing in the segment.

Can you quantify for us or at least ballpark for us how big that business is within the glass division?

On a sales basis, they're about equal.

The two businesses, although in fiberglass, we do have two Asian joint ventures that don't show on the sales line that do help us on the net income line, but the businesses are about equally, have an equal weight in sales in the segment.

And profit, I'm assuming is significantly more coming from the fiberglass, if not all?

Yes, the improvement, all the improvement came from the fiberglass business in this quarter and we look to see that trend continuing, because there's a lot of momentum right now in fiberglass and we're going to get some additional pricing, the performance glazing or flat glass business, again, commercial construction, still weak out there.

We're doing a lot of good cost work.

Have a number of new product initiatives.

We have some opportunities we think in solar energy, but right now, overall, that weakness in commercial construction is overshadowing all the good work we're doing in other parts of the business.

Got you.

Is the fiberglass business, is there much difference in the growth rates between epoxy coat -- epoxy resin systems versus urethane resin systems.

I would say the biggest would not be in those areas.

They would be -- these are nylon, and polypropylene based systems that they're going into on the re-enforcement side.

You have epoxy resin systems as substraits with fiberglass on the electronics side.

We've seen strength in both of those; electronics has been booming, but the reinforcements business, which goes into a lot of industrial applications, like automotive, that's been very strong.

We're seeing more, more use of fiberglass and plastics systems in automobiles because of the lightweight advantages.

We're also seeing a little more activity on wind blades.

An important part of our, what we would call our direct to raw product line in fiberglass, goes into wind blade production.

That's been a little I know consistent over the last couple of years.

We think wind power is the most competitive alternative energy source, but some of the funding and financing for these big projects has been stalled out, so we haven't seen quite as much growth there as we anticipate but longer term, wind blade production for fiberglass and solar energy, glass production for performance glazings should be good market drivers for us in future years.

Got you.

Okay.

That's helpful.

Last question.

On the tax rate, you talked about 28%.

Is that going to be a rate for the year, implying that in the second half you're going to be you know kind of more in the 26%, 27% range or is that the tax rate for the second half of the year.

That's the tax rate for the full year.

Full year.

Okay.

We had added a $0.07 benefit in the first half in the second quarter associated with the 28% rate for the first half; we'll have a 28% rate in the second half; 28% rate for the full year.

Got you Got you.

Okay.

That's all I have.

Thank you very much.

Thank you.

Thank you.

And our next question comes from the line of a [Aaron Izwanason] from Susquehanna.

Hello, your line is open?

Sorry, I had my line muted there.

Thanks for taking my question.

Question on the commodity chemicals segment.

What -- can you just update us on how the pricing initiatives are going, and you expect any weakness there if you do see some slowness in industrial activity in the second half?

Well, I think I went through, I went through some of the pricing initiatives for both caustic and chlorine, reviewed what had happened, in the first and second quarter, here in the third quarter.

We're seeing, as I mentioned, a very solid pricing environment for caustic soda.

We think industrial activity is maintained.

Inventory levels are low.

The cost basis for US-based industry in chlor-alkali because the lower natural gas costs, lower ethylene, the export environment is solid, the dollar, after a period of strengthening seems to be now reverting to a weaker footing, and, in fact, if I look at anything over the last weak week or so on the Euro dollar, that's going to be, that's going to help us a little more than we got helped in the second quarter, and it will also I think potentially keep European imports out of North American as I mentioned.

INEOS has just announced a price increase for caustic soda in Europe.

Asia aluminum settlement in caustic was up, so I would say that the pricing environment right now is very solid and if industrial activity -- if we see a return to the conditions that we saw 18 months ago, or industrial activity dropped off, could that change this outlook?

Conceivably, but right now we haven't seen that, and, if anything, we're seeing more of a reversion to the conditions in 2007 and 2008, which lead to record caustic soda prices and drew significant earnings improvement for, for our chlor-alkali business.

Okay.

Thanks.

Right, so most of the other operational questions have been answered.

The only other one was, just on the corporate level, that was -- what's the right corporate level you think would be on a quarterly basis expensed?

What I would do is average the first two quarters and use that for the basis for the second half of the year.

Okay.

Good enough, thanks.

Yes.

Ladies and gentlemen, I'd like to turn the call over to management for closing remarks.

I'd like to just thank everybody for their patience during our technical issues and we appreciate everybody's time today and look forward to talking to you next quarter.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.