PPG Industries Inc (PPG) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Q4 2012 PPG Industries earnings conference call.

My name is Marteen and I will be your operator for today.

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

We will conduct a question and answer session toward the end of this conference.

(Operator Instructions)

As a reminder this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Vince Morales, Vice President of Investor Relations.

Please proceed, sir.

Thank you Marteen, and good morning.

Again my name is Vince Morales, I'm the Vice President of Investor Relations for PPG Industries.

Welcome to PPG's fourth-quarter 2012 financial teleconference.

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

Our comments relate to the financial information released on Monday, January 14, 2013.

I will remind everyone that approximately one hour ago we posted detailed commentary and accompanying presentation slides on the investor center at our website PPG.com.

The slides are also available on the webcast site for this call and they provide additional support to the opening comments Chuck will make momentarily.

Following Chuck's perspective on the Company's results for the quarter, we will move to a Q&A session.

Both the prepared commentary and discussion during the Q&A may contain forward-looking statements, reflecting the Company's current view about future events and their potential effect on PPG's operating and financial performance.

These statements involve uncertainties and risks which may cause actual results to differ.

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

Today's presentation also contains certain non-GAAP financial measures.

The Company has provided in the appendix of the presentation materials, which again are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

For additional information, please refer to PPG's filings with the SEC.

Now let me introduce PPG's Chairman and CEO, Chuck Bunch.

Thank you, Vince, and welcome, everyone.

Our record fourth-quarter results capped off what has been an exceptional year for the Company, driven by excellent operating performance and the announcement of several significant strategic transactions that accelerate the pace of our portfolio transformation.

The record fourth-quarter adjusted earnings per share of $1.53 are 10% higher than last year and mark 10 consecutive quarters of adjusted earnings per share records.

We achieved these results despite continued variation in regional economic performance and mixed end-use market demand levels.

A few business highlights from the quarter were the aggregate Coatings segment earnings growth of 30% and Optical and Specialty Materials segment results which were similar.

Commodity Chemicals also grew earnings versus last year despite two unplanned outages during the quarter.

Full-year Commodity Chemical results eclipsed last years record level.

Geographically, the United States remained our strongest region, with most businesses delivering top line growth.

Emerging markets growth remained modest but trends improved in several businesses versus the prior two quarters.

European demand continued to be negative but the trend there also improved slightly versus the last few quarters.

A key element of our success in the quarter and overall for the year was the Company's strong operating execution.

We continued to aggressively manage our businesses and fourth-quarter results also benefited from the restructuring actions which we proactively initiated early in 2012.

For the full year, we achieved a record adjusted EPS figure of $7.94, which is up 16% from last year's record.

Worth mentioning is earnings results improved in each region including Europe.

Also, our full-year return on sales percentage was higher in each segment except Glass.

For the year, we delivered a record level of cash from operations, up 25% versus last year and continued our long legacy of returning cash to shareholders by increasing our dividend for the 41st consecutive year.

In addition, the announced strategic actions reflect the continued execution on our vision to remain a global leader in Coatings and Specialty Materials.

Progress is well under way to finalize these actions.

We begin 2013 well positioned.

Our expectations are for continued variations in economic conditions.

We expect a growth bias to remain for the United States, improvement in growth prospects in Asia, and European activity to remain subdued.

As a result of these mixed economic conditions we will remain diligent in managing our businesses.

Operationally, we expect an incremental $70 million to $80 million of savings from the finalization of our restructuring programs and we will implement targeted price increases in our Coatings businesses to fully offset the inflation from the past two years.

Finally, even before considering any impact from 2013 free cash flow, we have excellent financial flexibility with cash and short-term investments of $2.4 billion.

A primary focus for the Corporation in 2013 will be to analyze prudent cash deployment opportunities focused on profitable earnings growth.

Overall, I am pleased with the financial performance we achieved in 2012 and we remain focused as we begin 2013 on profitably growing the Company and creating additional shareholder value.

Thank you for your attention.

This concludes our prepared remarks.

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

(Operator Instructions)

David Begleiter, Deutsche Bank.

Chuck, just on today's announcement on the Optical JV and potential sale or purchase, can you give us a little more detail on your thinking on this business?

Is it core, is it non-core, if you sold it, what's the tax base if you bought it, how much would it cost you?

A little more detail would be great, thank you.

Well David, we're not really going to give a lot more color on our press release.

We did that for our disclosure obligations and we're not going to get into a providing a lot of additional details on the press release regarding transitions.

Understood and just one more thing, Chuck.

Looking at your Coatings margins they were roughly 13.1% for the entire Coatings businesses.

Should they be up or down next year, and if up, by how much do you think?

Well we feel we have an opportunity to improve on our Coatings margins.

We think in general, economic conditions and volumes should improve globally, depends again on the regions and markets but we feel that that is going to be an overall benefit.

Plus we have as you know, we'll be calendarizing the full restructuring benefits as we go through 2013, so those two events I think are -- those two conditions give us an opportunity to improve on our Coatings margins.

Thank you very much.

Duffy Fischer, Barclays.

You mentioned that you still wanted to get prices coming here to catch up with raw mats.

How much more price do you need to breakeven on raw mats overall?

Well, Duffy, we had some inflation as we look even at the fourth quarter, even as the raw material basket was coming in balance.

We still had a slight inflation overall in our costs and so as we look to 2013, we're seeing some, a difference in trends overall for raw materials.

We have some of our raw materials especially on the inorganic side that we have some modest declines.

Although now what we're seeing here as we start the year is some increases, especially in commodities here in North America, like propylene or ethylene.

So I would say that we're looking for a more balanced raw material outlook as we open here in 2013 and we will have other inflationary costs, and we will have more than likely some targeted price increases to address those or in businesses, regions where we haven't fully recaptured the inflationary pressure that we saw over the last two years.

Fair enough, and then on your goal, I think you've talked several times about more than 10% you'd like to decontent TiO2 from your can of paint.

How much of that did you get accomplished in '12 and how much more can we get done in '13?

Well when we looked, when we made the announcements regarding our targets for improvements in using TiO2 more efficiently, we said 4% to 6% during 2012.

We accomplished that at the lower end of the range and we think we still have in 2013 an opportunity to improve our utilization again in the lower-single digit target levels for 2013.

Great.

Thank you guys.

Frank Mitsch, Wells Fargo Securities.

Congrats on another record.

Thank you.

Chuck, you strike me as a somewhat loquacious individual.

The press release today on Essilor, today you're talking about the discussions and yet when you answered David's questions you talked about disclosure obligations.

Now I would have thought you'd have discussions with them ongoing over the years.

Has anything changed with respect to the discussions that you would have had of a strategic nature with Essilor?

No.

I would say that Frank, as you know, we are involved in a Reverse Morris Trust transaction with Georgia Gulf.

We are in the exchange period and we are aware of our disclosure obligations around the transaction and we felt that it was appropriate for us to issue the press release that we did.

Okay, so it has changed somewhat but it's really more of the RMT than perhaps something heating up today versus what it would have been a year or two or three or four or five years ago.

Yes, I think, Frank the focus again is the fact that we're in this tender period and we want to make sure we adhere to our disclosure obligations.

Thank you, and where are we on the -- or what inning are we in in terms of the restructuring and what should we realistically, expect?

I think you'd indicated you had $70 million to $80 million left on the current program, a lot of that European based.

In terms of Akzo you've got another $60 million when that closes I think another $30 million in year one so you can kind of get to $0.75 to $0.80 of EPS benefit from restructuring in 2013.

Is that how we should be thinking about that?

Frank, this is Dave.

The $70 million to $80 million coming from the 2012 program is still a good estimate of what we're anticipating and that would more likely come in the first half of the year and certainly the first-year synergies that we're expecting following the Akzo acquisition will come later on and be impacted by when we're able to close that transaction.

So you're still on track for a second-quarter close; correct?

That's what we're targeting.

Thank you so much.

Bob Koort, Goldman Sachs.

Chuck, just wanted a little more granularity on a couple of end markets you discussed in your release and commentary.

On the Architectural side you mentioned lower sales in emerging regions.

I'm wondering if you can just give us a little more color if there's been any trend change and how long we might expect these negative comps to continue?

Well I would say the biggest influence on our emerging region Architectural performance was actions that we took, Bob in Chile and Argentina to scale back our operations in those two markets in light of the economic conditions, so that overall, I would say that the trends for emerging markets were not nearly as negative if you looked at it overall excluding those two markets where we took Company-specific actions.

Okay, and then on your Industrial side you mentioned that packaging coatings were strong in all regions and I guess I was looking at what Alcoa had to say about beverage can volumes and it wasn't consistent across regions, so is there something you guys are doing differently that's giving you growth in the developed markets when it seems like most of the growth for those applications are in the emerging regions?

I would say that the strongest volume was in the emerging regions, but overall, we did see some volume growth in the developed regions.

Whether this was a restocking or emerging opportunities, plus also the BPA-free, the beginnings of those products now coming into the market may have had an influence, but certainly we saw some volume growth in all of the markets but strongest in Asia Pacific region.

Great, thanks very much.

Jeff Zekauskas, JPMorgan.

Do you have any reflections on titanium dioxide prices?

Are they holding flat, are they going down a little bit, are they going up?

Sort of how are they acting and how do you see them in 2013?

We have seen declines in the trends since the beginning or the second quarter of 2012 where they hit a peak.

These are different by regions so we've seen more weakness in Europe in light of we think overall economic conditions.

And as I said in my earlier comments, we're looking at a more balanced flat raw material basket as we go into 2013 with probably modest declining trends in TiO2 overall offset by what appears to be at least here in the first quarter some pressure on the petrochemical organic side of the raw material basket.

Okay.

In 2012, your restructuring efforts were to pull out I think $40 million to $50 million pre-tax in costs.

Did you achieve that and how would you allocate those cost savings across Europe segments?

Jeff, this is Dave.

We did achieve the $40 million of savings in 2012, and from a segment point of view, we had provided information in our April call that had identified by segment where we were anticipating getting those savings in 2012 and our actual performance was very much in line with that expectation.

Okay, thank you very much.

John Roberts, Buckingham Research.

With the high-single digit growth in US Architectural sales, more price or more volume?

Actually, it was fairly even but I would say probably bias to the volume side in the market.

And could you help us understand what performance, excuse me, Specialty Materials and Optical would have done without the Thailand sort of benefit comp and without the channel filling?

What would be a trend line in that segment, because it had sort of two major things going on, both easy comps against Thailand disruptions and the channel filling.

Yes, John if you look at the Optical business in the fourth quarter, we benefited year over year on the bottom line by about $5 million due to the absence of Thailand flooding impacts.

The top line we certainly were glad to see call it a fulfill of the inventory build for transition seven but that still wasn't a major driver there.

We did see as you know the last two quarters we had some destocking in the channel.

We saw a little bit of overall inventory restocking as well as the benefit of the transition seven build, so I'd say taking the two quarters in aggregate, third and fourth quarter we're seeing I'd call it solid mid-single digit trend gains.

Thank you.

Kevin McCarthy, Merrill Lynch.

Chuck, if TiO2 pigment prices do continue to erode, would all of that benefit flow into your gross margin for Coatings or might you have any contracts whereby you'd be obligated to share in that benefit with your customers?

For the most part, our contracts don't have material price indexes.

And as I mentioned in my comments, even though we're seeing a declining trend in the TiO2 pricing it's being offset by either other inflation or some continued inflation or on the organic side but also on the inorganic side we're seeing some non-TiO2 pigment prices that are increasing.

Okay, understood.

And then as a follow-up, just thought I might try for a clarification on your Optical press release.

There's a sentence in there that begins -- under certain circumstances which PPG does not yet believe have occurred either PPG or Essilor may have the right to specify a price.

Wasn't clear to me exactly what the trigger might be.

I'm not sure if you can comment on it but if you could perhaps address what circumstances might need to arise for either party to specify a price, that might help.

Kevin, we're not prepared to go into all of the specific details of the joint venture agreement, so we're not going to provide anymore clarity other than what you've seen in the press release.

Alright.

And then final one if I may, Chuck.

I think you cited improving growth prospects as part of your outlook for Asia.

Can you talk about what is driving that?

Is it macro- or Company-specific or both, and which productlines you're feeling better about regionally within Asia?

For us, let's call it the general industrial activity was improving as we moved through the second half and into the fourth quarter.

Automotive builds have also continued to grow.

We have seen some as you know slowdown on the electronic side and some of the construction related end-use markets were still slow although here as we've been talking about with the leadership, with the new leadership in place in China, we think that we're going to see now incentives for growth and we have seen some signs of strengthening in some of these other markets, although right now it is not quite evident on the electronic side.

Okay, thank you very much.

John McNulty, Credit Suisse.

Hi, this is Avi Rajinran calling in for John.

So a quick question on M&A.

So looking past the Akzo deal could you touch on roughly how much cash you expect to have to put towards further M&A as well as some of the main areas of focus both on a business and regional basis?

Well if you look at our cash at the end of the fourth quarter, so we had some close to $2.5 billion, we will receive at the conclusion of the Georgia Gulf transaction, around $900 million that will be our outlay, more or less later in the year with the closing of the Akzo transaction.

So that would put you at relatively the same position that we finished the quarter in which we have previously announced -- at what we need to run the Company is under $500 million, so it would give us we think considerable resources to deploy for shareholder value creating initiatives.

Got it, and then just some of the main areas of focus that you might be looking at both on either a business or geographic basis?

Well, we would continue to look for opportunities as we have talked about in our Coatings businesses.

Geographically, we have made two announcements, we completed the Spraylat acquisition about two weeks ago.

That was a North American-focused company and industrial coatings although they had operations in China and in Europe.

Akzo is predominantly or almost all North American, including the Caribbean, Canada, and the US, and we continue to look for opportunities in other geographic areas so that would be one of the areas in which we would continue to look for opportunities but we have other segments of our business or our Company that we think if there are appropriate opportunities, we would continue to look for acquisitions in those areas as well if they will create shareholder value.

Okay, got it.

And then just a quick follow-up on the auto area.

Could you touch on some of the share gains that you're continuing to see in auto OEM, just in terms of what's driving this and are they geared towards any particular geographic regions or anything else you could share?

Well, if you look at our automotive OEM business in 2012, two of the strongest growth areas globally for the industry were here in North America and in China.

We are well positioned in both of those markets and we think that we had a very good year in terms of participating in the industry growth, plus the customers that we were working with and some of our new product introductions were very successful in each of those markets and that was beneficial to driving the overall growth in our automotive coatings business globally.

Okay, great.

Thanks very much.

PJ Juvekar, Citi.

So first, Akzo acquisition announcement, have you had a chance to talk to your retail partners, Home Depot, Lowe's, Wal-Mart to see their reaction in any potential channel conflict issues?

Yes, we have, we as PPG.

We visit the major customers in all channels on a regular basis.

We did follow-up with the customers in all of the channels and we announced our strategy in which we were going to continue to support all of our existing businesses, plus those of the acquired Company and I would say that the interaction with the customers in the channels was very positive.

Okay, and then on automotive OEM.

You just talked about share gains.

I know a competitor was selling its business and that sold but they probably lost share.

Are the share gains done now or do you expect the share gains to continue in 2013?

I would say that it's difficult to determine actual share in this industry on a short-term basis.

Many of the when you look at awards oftentimes you're awarded business for several years, different models, different plans, and I would say at this point, I would not say that we see significant share shifts.

We're trying to continue to support all our customers and we have been fortunate to work with a number of them that have done very well in their markets as we talked about here in North America in China and Asia more broadly.

And probably most importantly, we just continued to work on execution, keeping our costs in line and especially focused on the weakness that we've seen in Europe overall, so we focus there not as much on share gains but more on execution and driving our operations.

Thank you and just quickly lastly, I think earlier you said that you got strong volume growth in Architectural.

Can you compare your volume growth in your own stores versus big boxes and what it's coming from and just compare qualitatively.

Thank you.

Well, I think I indicated that performance by channel was similar for us.

We had high-single digit overall sales growth probably more on the volume side than on the pricing side, and I would say the performance overall by channel was positive in both channels.

Thank you.

Nils Wallin, CLSA.

With regard to Europe, it seems like Architectural Europe, it seems like that business you've been able to enjoy price increases much more than some of your other Coatings businesses so I'm wondering and of course this is amid a fairly weak macro environment, so I'm wondering what you're able to do there that allows you to generate a higher price increases year over year than in some of your other Coatings segments.

I would say that the majority of the improvement in Europe has been driven by our cost and execution actions and we did focus as you know the overall corporate restructuring on Europe.

And obviously that segment, the Architectural EMEA segment was the focal point for our restructuring activities in the overall Architectural business globally, so I think that's where you're seeing most of the improvement would be on the cost side for that business.

Got it.

And then if it sounds like in your prepared remarks, you expect OEM volumes to be roughly flat year over year in 2013, does that mean that you just really have to see a lot more heavy lifting coming from the packaging and general industrial in order to see volume growth?

Or is there something else in there to assume that you're going to see continued volume growth in general in the Industrial Coatings business in 2013?

Nils, this is Vince.

The reference in the prepared remarks was really toward Q1.

Oh, okay.

Not the full year for 2013.

We do expect full year growth and global automotive again with the European weakness as a partial offset, so again, the Q1 we saw very strong results in the first quarter 2012 and the year-over-year growth will be tempered by those first-quarter results last year.

Got it.

That was the tsunami effect so that you had in the first quarter a lot of inventory rebuilding because the supply chains were depleted especially among the Japanese-based manufactures as a result of the tsunami in 2011.

Got it.

And then just finally, if more of a strategic question.

With the Akzo transaction as well as Sherwin's, it seems like in just about every end market for coatings, you're going to be number one or number two.

Is there much more you can do in terms of M&A, I mean it seems like there aren't too many more big companies out there that you can do or you can acquire, so going forward, are we going to see in terms of your acquisition strategy just more bolt ons?

Well, I think that if you look at the coatings industry globally, it is still not a highly-consolidated industry compared to many other global manufacturing industries, so we think that there will be opportunities for more consolidation on a global basis but the regional mix of acquisitions may change.

But if you look at the industry in most other regions in Asia, in Europe, Latin America, these are areas of continuing opportunity for further consolidation in coatings.

Got it.

Thanks very much.

Laurence Alexander, Jefferies.

This is Rob Walker on for Laurence.

To follow-up a little on raw materials, so propylene contract looks to set to increase about $0.15 in January.

Does your forecast -- or the comment you made around relatively flat pricing in 2013, does that imply that propylene prices will soften later in the year as they did last year or I guess are you planning to increase prices to fully cover the proposed January increase?

Well I think our comment was in relation to this balance in the raw material basket between let's call them the inorganic raw materials and the organic or petrochemical-based raw materials, with these increases that we're seeing in propylene and ethylene here as we start the year and that potential impact on raw material price escalation in those raw materials offsetting any negative trends that we may see in the rest of the basket, that's what we are saying is right now we're looking at something more balanced but obviously we're going to look at the trends in the entire basket and the different raw materials that are going in.

And if we see further spikes in propylene or those get pushed through into the propylene-based or raw materials that we're buying, then we're going to certainly open up discussions with our customers if we see those escalating much more than what we've seen current.

Okay, so if prices go up further, than the January increase and they get passed to the derivatives is there a price level where you would hit a point where you couldn't pass through the price in the current year and have a situation where you'd have to recoup it over two years?

Well typically as we talked about with price increases in the past, typically there is a period when we're trying, we're certainly trying to push back on any price increases that we would be receiving in the short term.

But then as we absorb this raw material inflation on our side, typically as we've talked in the past it can take a quarter or two for us to try and get those increases reflected in our pricing with our customers, so I think that's in general how we've described the timing on raw material in pricing increases.

Alright, thank you.

Don Carson, Susquehanna Financial.

Couple questions.

One, on US Architectural where you'll have a much bigger exposure obviously post the Akzo acquisition, what do you think that overall growth was for the full year from an industry standpoint for 2012?

And did you exceed that growth?

The numbers I've seen suggest about 4% industry growth which I guess would be the first increase in a number of years.

That would be around what we're saying would have been the growth in 2012, Don so that's consistent and it's certainly the first increase in several years, we're still nowhere near where we were before the crisis so if you go back to 2006 or 2007 we're still much below that.

We think that 2013 is going to be a good year for the US construction industry.

The first quarter last year was pretty good because we had some seasonally good weather.

It was still a little early to forecast what's going to be the outlook for the weather in the first quarter, these first couple weeks have been more normal.

But I would say overall for the full year, we're optimistic that these trends that we saw, these first positive trends are going to continue in 2013.

The data, the housing data, the construction data overall has been continued to be for the most part positive.

You're seeing a lot of anecdotal information about in certain markets the housing resale market strengthening, we've seen increases in new home construction permits and starts, so overall, I would say we're fairly optimistic.

We've gotten through the fiscal cliff.

Do we have some problems in a few months with the debt ceiling and other things that could derail this, mortgage rates continue to be very positive, so we are optimistic and we think we're going to have a good year in 2013 and in North America and Architectural.

For 2012, did you grow above the industry rate?

Did you take share, and would you expect to grow above the industry rate in pro forma basis in 2013?

I would say in general, we were in line with industry trends in 2012, and in 2013 obviously we'll get a bump from the acquisition activity that with the Akzo North America and I think we're well positioned to take advantage of the growth that we see overall for 2013.

And then just a follow-up on your share repurchase intentions, you've talked about 500 million to 700 million once the Reverse Morris Trust is done.

Is it your intention to get most of that done in the first half and then depending on what acquisitions are in the pipeline increase that level of share repurchase in the second half of 2013?

I would say, Don this is Dave, that the expectations there are that we would spread that activity, the share repurchase activity out over the remainder of 2013, so I would not envision it being sort of loaded into the front half of the year.

Thank you.

Gregg Goodnight, UBS.

Modeling questions for Dave.

First, cash contributions to pension in '13, do you expect them to be about what they were in '12?

Yes, Gregg.

In 2012, our only cash contributions were to our non-US plants and we would expect the same situation in 2013, and in terms of amount, 2013 would be in line with 2012.

Okay, on the also on cash, the asbestos settlement has been in abeyance for quite awhile.

Would you expect any cash requirements for potential settlement in 2013 at all?

It's certainly a possibility, Gregg.

I would say if it is, it would likely be in the back half of the year.

Okay, last question if I could.

Your portfolio transformation has gone well, it seems to be near completion.

The obvious element in your portfolio that doesn't seem to fit with the rest is obviously the Glass component.

Does Glass fill some long-term strategic niche in your portfolio or is that an area that might require some additional looking at by the Company?

Well, as we've talked about, the businesses in that segment are businesses that aren't in our core but have been contributors over the years.

But we are, we would be open to look at opportunities to create shareholder value.

We think that we have begun to see the improvement in the Flat Glass business.

This is tied more specifically from an end-use market to the commercial construction industry here in North America.

We're seeing some of the early signs of improvement.

We do have what we think is a good position in that business, good brand as well as market position, so we think that there's an opportunity for further improvement in that business.

Fiberglass as we mentioned in the release, we have had some challenges tied to some global weakness in the business in Europe, we are tied as well in Asia to the electronics industry which has been weaker, so right now, we think that we're focused more on the right things in the business which are continuing to improve our operations and if opportunities present themselves, as we move forward, we'll continue to look at it.

Okay, thanks for that help.

Ghansham Panjabi, Robert W Baird.

Happy New Year.

For the two more profitable Coatings end markets, aerospace and auto refinishing, how should we think about the outlook for the full year?

And also was auto refinish a bit weaker than you initially thought it would be for the fourth quarter?

I would say if we look at those first aerospace business, we had a very strong year in 2012 and we think that the industry on a global basis looks good in 2013, so we're looking for further improvement in our aerospace business.

Military will probably not be as strong in terms of the end-use markets but what we've seen here is commercial aviation continues to be strong.

There is more better airline profit globally, so we think the aerospace business looks good.

In the refinish business, we had some weakness in the European market in light of the overall economic conditions there, but it is tied in the longer-term trends to global industry builds and the global car parts which are growing.

The automotive industry globally is a growth industry and we're seeing that play out, so the longer-term trends are good for automotive refinish, we think we'll have a good year here in 2013, but Europe obviously was part of the story in 2012 with the weakness that we saw there.

Okay, and then last quarter, your auto OEM production chart for the EMEA region is estimated at 11% decline I think for the fourth quarter.

Do you have a sense as to what the estimate is for the first quarter for that region?

Yes, it's going to be negative but not at that level because I think now we're seeing some, we're still seeing negative trends in Europe but not an acceleration of the declines that we've really been experiencing now for six quarters.

Okay, great.

Thanks so much.

Charles Dan, Morgan Stanley.

Just looking at your geographic split, it seemed like North America was very strong, I was wondering if looking at your regional split if you could see any impact positive or negative from Hurricane Sandy.

No, I wouldn't say that any of the trends that we saw here in the fourth quarter could we attribute to that.

Obviously, the two things that are probably going to play out here in 2013 will be the rebuilding or reconstruction activity that should help the construction industry in the Northeast, as well as what happened to -- there were a lot of vehicles that were damaged or destroyed and that should be a boost to the automotive industry both in terms of the OEM and the refinish industry here in 2013.

But I wouldn't say it's going to be the driving force and it was really too early in the fourth quarter of 2012 to really see a trend there.

Thank you.

James Sheehan, SunTrust.

I was wondering if you could comment on the licensing deal with the Chinese company on TiO2.

How big a portion of the overall reformulation effort is that now, and how big do you think it could be in the future?

Well the overall licensing agreement with Billions I would say is quite small, so that it really doesn't figure in to the targets that we talked about for improving TiO2 productivity or usage in our formulas.

I would say that neither the licensing revenue or the impact or on meeting our metrics were in any way significant.

They are a supplier to PPG but the things that we're talking about there are more long term in nature.

There's no immediate benefit in terms of starting up a chloride production and I think these things are events that will take place in the future.

And just on the situation with housing starts and some of the macro data that you referred to earlier, I was wondering if you could comment on some of the PPG store inventory levels.

Are you seeing changes there that are reflecting some of this macro data or just what are you seeing in the inventories now?

Well, we try to keep our inventories in balance with the level of demand, and so as we get into the first quarter, we typically have inventory build in our Architectural business as we prepare for the busy season.

And I would say even though the volume trends were positive for us in the fourth quarter and our own stores it was nothing that we could -- we were having to make let's say unusual adjustments to inventory levels to meet what we saw out there.

But obviously, positive trends, something that we're watching so that we feel we'll be fully prepared as we go into the season this year.

Okay, thank you very much.

Kevin Hocevar, Northcoast Research.

This is Saul in for Kevin today.

A couple of specifics if you could.

Your total Company had $57 million worth of sales improvement due to price.

How much of that was in Coatings and what was the raw material dollar change either up or down in Coatings in the fourth quarter?

Saul, if you look I think we said in our prepared comments that both Glass and Chemicals had negative pricing in the quarter, so all the Coatings gains were primarily Coatings, or excuse me, all the pricing gains were primarily Coatings oriented.

And we did still see inflation in the quarter and for the full year, we saw inflation so we're still trying to work through as Chuck mentioned earlier, a full offset of inflation over not only this year but really the past 24 months.

But in the quarter events was the inflation more or less than what you got in pricing?

They were fairly close as Chuck mentioned, as we're trying to get more, they're fairly balanced now but we do see more inflation coming early in the first quarter of 2013.

Okay, and then a second question on Glass.

How much of the earnings are equity income and what was the equity income component this year versus last year, so we could separate what you earned from your operating businesses versus your equity contribution?

Even in a good year, Saul, the equity earnings don't account for more than 15% of Glass total earnings.

They are more volatile because there's no sales impact or we don't control the costs.

We were down several million dollars this year primarily due to the fiberglass JVs which are focused on the electronics market which as we mentioned earlier remained weak, but that's the biggest JV structure we have in our Glass segment.

So of the $9 million that you earned how much was the equity income?

Just $2 million?

At best.

And fourth quarter is seasonally light just by nature.

Got you.

Great.

Thank you very much guys.

Richie O'Reilly, Vera Associates.

A couple of follow-up questions.

The first one in Glass.

Do you still own the 40% in the auto glass business and what's the status of that longer term?

We do own, we've maintained our minority interest.

It's actually 38% and that is in our portfolio.

We continue to have a good relationship with the majority owners, the Kohlberg Company and right now, it's an ongoing business in our portfolio.

Okay, so you would need to have the other owners decide if they wanted to acquire the rest of the stake, is that, would it be their option?

Well, as we stated earlier, we're not going to go into all of the details of our specific joint venture contracts, but right now, the business is operating successfully and continues in our portfolio.

Okay, second I'm going to try the transition announcement again and Kevin earlier started reading a sentence but near the end of it, it talks about interest of one or more of the joint venture companies.

Can you give us an idea what that is referring to?

Is that regional or is it productline?

I guess could you keep your overall interest in the overall venture at 51% but change ownership of these sub ventures?

Rich as we mentioned earlier, I think everything we're going to say today on that is in the release.

Okay, great.

You're being tough today, Vince, thanks.

Bye-bye.

John Roberts, Buckingham Research.

Yes, Chuck you mentioned US automotive OEM in 2013 might benefit from the destroyed cars from the hurricane.

Would most of that really be in the first quarter here and you already said that I guess it will be offset by the difficult comps against the Japanese tsunami effect?

I would say that we're not exactly sure when we're going to see the impact from that hurricane.

The OEM business goes through several distribution layers.

I would think that we're going to see more of that in the first half.

I would think that by the middle of the year, any effects on at least in automotive from Hurricane Sandy should be evident.

Now it may take a little longer on the construction side of the equation, you may take let's say the full year to see all of the impact of the reconstruction activity but I'm not sure that in the automotive side you're going to see that all in the first quarter but I would say most of that should be in the first half.

Okay, thank you.

I would now like to turn the call back over to Management for any closing remarks.

This is Vince Morales.

I'd just like to thank everybody for participation today.

If there are any further questions, please feel free to contact me in Investor Relations.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a great day.