PPG Industries Inc (PPG) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2014 PPG Industries earnings conference call. My name is Jenada and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Vince Morales. Please proceed.

Thank you, Jenada, and good afternoon, everybody. Again, this is Vince Morales, Vice President of Investor Relations for PPG industries. We appreciate your interest and welcome you to teleconference to review our third-quarter 2014 financial results.

Joining me on the call today from PPG is Chuck Bunch, PPG Chairman and Chief Executive Officer; Michael McGarry, Chief Operating Officer; and Frank Sklarsky, Executive Vice President and Chief Financial Officer.

Our comments relate to the financial information released on Thursday October 16, 2014. I will remind everyone that we posted commentary and accompanying presentation slides on our Investor Center at PPG.com. These slides are also available on the webcast site for this call and provide additional support to the opening remarks Chuck will make shortly.

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

Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the Company's current view of future events and their potential effect on 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.

This presentation also contains certain non-GAAP financial measures. The Company has provided in the appendix of the presentation materials, which again are available on the website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information please refer to our filings with the SEC. Now let me introduce PPG Chairman and CEO, Chuck Bunch.

Thank you, Vince, and welcome, everyone. Today we reported third-quarter 2014 financial results including record third-quarter adjusted earnings per diluted share from continuing operations of $2.82 and record third-quarter sales from continuing operations of $3.94 billion.

Our sales improved 4%, a rate of growth similar to the second quarter. Our higher sales were primarily due to higher volumes which grew 3% in the quarter in comparison to strengthening prior-year results. We achieved higher volumes in all major regions. However, the regional results remain uneven.

Year-over-year volume growth was highest in North America and Asia, both about 4%, as volume gains accelerated in both regions versus previous quarters. European volumes advanced slightly, less than 1%.

We continue to benefit from customer adoption of our leading technologies, our higher sales were driven by volume growth in aerospace, automotive OEM coatings and automotive refinish where the growth rate this quarter matched or exceeded the prior quarter's results.

Our adjusted earnings per diluted share of $2.82 improved 22% versus the prior year. We once again achieved record earnings in each major region. Our European earnings were up 17% and North America and emerging regions advanced 10%. The earnings increase was a result of the improvement in sales along with an improved business mix. In addition, we maintained our ongoing cost discipline in all of our businesses.

Earnings per share growth also benefited from cash used for acquisitions including savings stemming from achievement of additional acquisition-related synergies. Cash deployed on share repurchases was also a contributing factor. We repurchased $150 million or about 740,000 shares in the quarter and $450 million or about 2.4 million shares year to date. In the quarter our average diluted shares outstanding were more than 3.5% lower versus the previous year's third quarter.

As I mentioned earlier, the pace of demand varied by region. In North America we benefited from continued moderate economic expansion. Industrial activity remained solid, including higher regional automotive OEM coatings, aerospace and overall general industrial demand. Volumes in our businesses serving these markets were up mid- to high-single-digit percentages.

Architectural Coatings sales were up low-single-digits, supported by higher US sales in our company-owned stores and national DIY retailers and were partly offset by modestly lower demand in Canada. Also supporting the sales increase were signs of an initial modest recovery in nonresidential or commercial construction which also was a factor in our improved flat glass sales during the quarter.

In addition to the higher sales the 10% regional earnings improvement included benefits from additional acquisition-related cost synergies from last year's North American Architectural Coatings acquisition. I have been pleased with our progress on this acquisition and we now expect to complete nearly all of the significant synergy actions by year end, more than one year ahead of schedule.

In Europe our results were mixed geographically within the region as well as by end use market. Our sales grew about 2% including slight volume growth of less than 1% in comparison with improving prior year sales. Currency translation was not a factor in the quarter as the three-month average euro exchange rate essentially matched the previous year. The euro weakened versus the dollar late in the quarter and, based on current rates, we expect euro currency translation to have a larger impact in the fourth quarter.

In the region PPG continued to benefit from growth in the industrial and automotive markets coupled with improving aerospace demand. Our Architectural Coatings volumes in the region were down slightly declining 1%. We had solid architectural demand growth in the UK and Eastern Europe which was offset by modestly lower results in other countries, including France where volumes were down low-single-digit percentages and were consistent with results earlier in the year.

Also important with respect to Europe is that demand in the region was generally consistent throughout the month of September. With regard to emerging regions, our sales in Asia were up 5% including 4% volume growth. Growth was broad-based spanning across nearly all PPG businesses in this region and was also led by industrial and automotive markets. Additionally, our Marine new build volumes were up very modestly as this industry begins to recover from several years of activity declines.

In Latin America, which is our smallest region representing about 5% of our sales, regional volumes grew low-single-digit percentages aided by higher automotive demand, but were offset by lower results in other businesses.

Strategically in the quarter we completed the sale of a North American flat glass manufacturing facility and our automotive glass equity affiliate sold one of its business lines with both divestiture transactions generating one-time gains. We also continue to work on customary actions related to our pending acquisition of Comex. Let me take a few moments to give you an update on the Comex acquisition activities that have occurred since we signed the acquisition agreement.

We submitted a formal filing with the Mexican Competition Commission requesting approval of the transaction within a few days of the acquisition announcement. Over the past few months we have responded to customary formal and informal information requests from the Competition Commission.

Last week the Commission issued a time extension on their transaction review. Without this extension the Competition Commission would have been required to rule on the regulatory filing within the coming days. This extension was anticipated and was included in our original projected four to six months timeline.

We continue to anticipate that the Commission will complete their review and that we will close the transaction in the fourth quarter as we previously expected. Economic growth trends in Mexico remain very solid and we are looking forward to working with Comex's customers and employees.

Looking ahead, while we are watchful of the pace of global economic expansion, we remain confident in our ability to deliver continued solid earnings growth driven by the ongoing momentum we have established in the many key end use markets.

Additionally, we are just now beginning to benefit from an initial recovery in several long cycle industries including North American commercial construction and marine new build activity in Asia which had previously detracted from our overall growth. The fourth quarter is historically our slowest quarter seasonally and we anticipate normal seasonal trends will occur in our businesses this year.

The fourth quarter is also traditionally our strongest cash generation period and we continue to maintain a high degree of financial flexibility as we ended the third quarter with $3 billion in short-term investments. Including the pending Comex acquisition we will likely spend at or above the top end of our previously communicated range of $3 billion to $4 billion of cash in years 2014 and 2015 combined on acquisitions and share repurchases.

Our acquisition pipeline remains active and share repurchases are expected to remain an integral part of our cash deployment including additional repurchases in the fourth quarter. This concludes our prepared remarks. Once again, we appreciate your interest in PPG. And now, operator, would you please open a line for questions?

(Operator Instructions). John McNulty, Credit Suisse.

Chuck, maybe you can give us an update -- we have seen oil prices come off pretty dramatically. I know you have got a lot of derivative exposure to that. Can you give us an update or a reminder as to what that exposure is? And then also, I know there are some outages around some of the derivatives that you use out there, but typically how quickly -- when we see a big oil price move, how quickly do we see it actually impact your cost overall? Thanks.

I would say overall historically on our organic raw material purchases, when you see it at let's call it these wellhead prices, you are going to typically wait at least a quarter or two to see that begin to appear in some of the downstream products.

So it would not be immediate benefit other than in -- we hope to see it a little more quickly in our transportation and distribution costs, which have been one of the sources of this low-single-digit inflation rate that we have been experiencing over the course of the last year or so.

Great, thanks. And then maybe as a follow-up, I think you had indicated in the US your stores business for PPG legacy businesses had upper-single-digit volumes. Can you give us an update as to what the Akzo stores that you actually maintained through the full year or roughly for the full year, what their year-over-year sales growth was as well? If you're seeing any loss of business there or any improvements there?

Yes, I will let Michael McGarry, our Chief Operating Officer, respond. Michael.

John, those legacy Akzo stores were minus low-single-digits. We have started to put the PPG products into those stores so the momentum has turned around. And we saw increased sales out of those stores each month in the quarter.

Great, thanks very much for the update.

Vincent Andrews, Morgan Stanley.

Hi, this is Matt Gingrich on behalf of Vincent. I was wondering if you could speak more to the inflationary cost pressures that you are seeing in your performance segment including the higher logistics cost that you noted in the release.

Well, I would say that we have -- we are saying low-single-digit inflation rates led by wages and benefits followed by distribution and transportation cost that I referred to. We've seen I would say also very modest raw material increases, but these were in some of our organic raw material chains on the propylene and ethylene side balanced off by some of what I would say benign raw material environments for our other key inputs.

Sure, thank you. And then to follow up in regards to your North American Architectural Coatings business. I was wondering if you could talk more about how the independent channel performed over the last quarter.

This is Michael. So the dealer network was down very slightly and that has historically been a contracting segment for us. And so it is consistent with our expectations.

Okay, thank you. I will leave it there.

Don Carson, Susquehanna Research.

Chuck, a question. You mentioned that you've got the long cycle businesses starting to turn nonresidential construction North America and then the marine business. Can you talk about what your exposure to nonresidential construction is in North America, specifically in the architectural paints business? And I noticed new marine builds are finally showing a little growth. What kind of trajectory do you see in the recovery in that business?

For Architectural Coatings on -- commercial construction typically is between 20% and 25% of the Architectural Coatings mix here in North America, some of that new construction, some of that repaint.

So I would say that is the market that has been very quiet over the last few years even coming out of the recession. And that is where we are seeing some improvement both on the Architectural Coatings side as well as what we mentioned as the flat glass business where we are starting -- where we have more exposure directly to that end use market.

On the marine new build, which is about 25% historically of our protective and marine coatings business unit. I would say that the improvement is early stages low-single-digit improvement. But as we've been talking over the last almost now couple of years, that had a very sharp retrenchment. So it is good to see the improvement going in the right direction even if it is somewhat modest at this point.

Just as a follow-up, on Comex is there any provision to reprice that acquisition given the recent drop in equity markets?

To reprice? Excuse me, Don -- was that --?

Any -- well, any price adjustment that you could see on Comex given that obviously valuations have come down dramatically since you made your first offer.

No, at this point we are not envisioning any repricing of the acquisition and their performance, as we've monitored it since the time of the acquisition, has continued to be quite strong.

Thank you.

Ghansham Panjabi, Baird.

Just first off on sort of the macro mosaic, Chuck, any sort of high-level comments as to what you are seeing specifically occur? Maybe conversations with your customers, just given the mixed data out there?

And then also for 3Q specifically I know you called out volumes during that last conference call for the month of May. Was there anything unusual for 3Q?

No. So first, if we just look at business activity kind of across the end use markets with our customers and, again, it has been more of a regional mix or a regional story. So the North American businesses have remained quite strong as we have been talking aerospace, automotive OEM, we are seeing construction activity that has been I think consistently growing. Initially residential, now we are seeing it also more broadly on the construction side.

So I would say, so the key end-use markets here in North America continue to be strong, especially here in the US. What we have seen in the rest of the world is some moderation of some of the strongest growth trends. We had seen some modest improvement in Europe over the first couple of quarters.

Those trends I would say have continued but probably at a slightly more modest level. Although the third quarter for us was still consistent with what we had seen earlier in the year.

Asia has been, especially China, a good story for us especially in these consumer businesses that -- where we look at the end-use market growth in an automotive OEM, automotive refinish packaging. These have been solid growth stories in the Chinese market. We see some improvement starting in India.

South America or Latin America for us, outside of that automotive OEM and industrial space not growing as much in terms of construction activity. So we are still going through both in Latin America and in Europe some moderation on the construction side and some slightly weaker currencies in both of those markets.

Okay, and then just in terms of Performance Coatings, did the operating margins come in where you thought they would for the quarter? I'm just wondering why there was a drop off versus the second-quarter level.

I think operating margins were good. Typically in the third quarter you don't see as strong of margin or sales growth because of August being a slower month in Europe. And those three months versus the second quarter in the architectural business is generally not quite as strong. But I would say otherwise we felt that it was a good performance in that group of businesses.

Okay, great. Thanks so much.

Bob Koort, Goldman Sachs.

Good afternoon, this is Neal Sangani on for Bob. Some of the industry data out there showed a pretty significant deceleration in Chinese auto sales in September. Did you see something similar in that market? And what might the growth look like in China for the fourth quarter versus the strong 10% you saw in the third?

We saw the -- we saw some of the data that came out in the third quarter. First two months of the quarter were quite strong and from a production or build standpoint, which is where our sales are tied, we continued to see good growth.

We also, we feel, have momentum with some of the strongest performers in China in terms of automotive demand. And at this point we are seeing solid growth at the 5% to 7.5% kind of growth rates which were what we anticipated as we went into the year.

Great. And your skeptical outlook for [TR2] price hikes in the back half earlier this year looks to have been pretty accurate. At this point do you sense whether you might see some price inflation in 2015?

That is probably a little early to say. But I think right now we are seeing very consistent flat pricing in some of those inorganic materials.

Great, thanks.

Kevin McCarthy, Bank of America.

On a regional basis volume looks like it was this slowest in Europe, up less than 1%, and yet your earnings increased at the fastest pace at plus 17%. Can you elaborate on why that is the case? Presumably costs are part of it. If things slow down from here are there additional levers that you can pull on the cost side going forward?

Well, I would say, Kevin, first on the volume side we did have a little bit stronger first quarter this year. And I think we talked about it early in our calls that we had very favorable weather. We had, we think, some things that probably pulled some of that business forward for us.

In the first quarter I would say the Architectural Coatings businesses, in the third quarter probably a little weaker in terms of overall end-use markets. And we mentioned a couple of the Southern European markets including France were a little weaker. But we still are finishing up I would say the restructuring actions and the costs that we have continued to pull out of that business.

It has been a very benign market in terms of inflationary cost more so than what you have seen generally out of Europe in terms of inflation. So we think that there are still some things that we can continue to affect in Europe to continue to be more efficient, more productive. And so, I would say that even in this very low volume environment we are expecting to continue to drive more productivity and cost actions.

Okay, and then as a follow-up, Chuck, given the downdraft in the equity markets, do you see any potential to accelerate the pace of share repurchases relative to the 150 million that you bought back in the third quarter?

We would anticipate, Kevin, that we are going to be buying at a higher level here in the fourth quarter. During the second and third quarters we sat out a little bit of those periods from share buyback activities because we were waiting on -- to see if the transactions would develop or were out of the market.

So I would say that we are going to be continuing share buyback activities in the fourth quarter at a higher level. And we're obviously aware of the lower equity values for us and the market in general. So that could provide an additional opportunity to be a little more aggressive on share buybacks.

Great, thank you very much.

David Begleiter, Deutsche Bank.

Chuck, you mentioned FX being a headwind Q4. Would you care to try to quantify the impact of the weaker euro on your operations both maybe top-line and bottom-line in Q4?

Yes, David, this is Frank. So if you look at the euro where we have the most significant impact, Canadian is somewhat less of an impact, but the big impact is they euro. And I would say if the rates were to stay where they are now as compared to our plan which is basically in line with where we were last year at this time, you are talking about $60 million to $70 million of impact on the top line mostly from translation.

The impact on the bottom line is more muted because we do have that natural hedge with our manufacturing and overhead infrastructure in the same region. So you are looking at an EBIT or PTPI impact of single digits millions of dollars on that $60 million to $70 million on the top line.

Very good. And, Chuck, just in terms nearer term trends, especially Europe, has October seeing a pickup in demand either in the industrial businesses or architectural versus September?

I would say, as I think I described our third quarter activity as September was consistent with normal seasonal trends coming off a slightly weaker August but a slightly stronger July here in the early part of October. I would consider the trends to be normal in our European operations.

Thank you very much.

Frank Mitsch, Wells Fargo Securities.

And I guess normal in Europe is very positive these days. Hey, Chuck, you talked before about seeing marine starting to improve. Can you give us some orders of magnitude? How far down has it come over the past few years? And what sort of a recovery are we seeing there so we can have an idea as to how long that might play out?

Well, I would say the new build activity, which was again about 25% of our protective and marine business unit, which let's call it rounding a $1 billion business. And we were down over 30% in that market. And as I mentioned, this is just the beginning of what we think will be a modest but longer-term recovery.

So, we are up in the third quarter low-single-digits in terms of recovery. But it is a positive sign, we feel, that the market has hit bottom and is coming back.

So the expectation is that you could get back over the next two years 20% to 25% or so to get back to where normalized would be?

I think if you look at the longer-term trends and you are talking over the next -- this has been probably a trend that's -- the decline has been probably over three years. So if you look at a longer three- to four-year period, I think we can get back to those kinds of production levels but over that kind of timeframe.

All right, terrific. And then you mentioned in the compared comments about the strong M&A pipeline. Are there particular regions or product areas that you are preferentially going to outside of Mexico, of course?

Yes. What I would say is I commented earlier, although almost all of the acquisition, the modest acquisition activity that we have had this year, almost all of that has been here in North America and that is similar again to the target market for Comex.

We see good discussions going on around the world, probably now more balanced in the emerging region. So again discussions both in Asia, Latin America and Europe where maybe the levels of confidence over the last few years not quite as strong. And this could provide us some opportunities going forward to make some key acquisitions over the next year or so.

Thank you so much.

Arun Viswanathan, RBC Capital Markets.

I guess first question is on aerospace. Do see the growth rates there slowing at all or is there a chance that they could take actually accelerate when you kind of get more content on the 787?

I think if you look at production levels now, both at Airbus and Boeing and the backlogs that we see, I think you are going to see a maintenance of this continued trend that we have seen in commercial aviation, some improvement we hope in on the defense or military side of this.

Airline profitability had to also been improving, so we were expecting and are hoping to see more improvement on what I would call that commercial aviation aftermarket. So in general I think the trends are positive and growing, although commercial aviation build rates I think are at a very good level now and will probably get slightly better from here. But I don't see a major step change now with the build rates that they have.

Okay, thanks. And then on -- packaging has been lagging a little bit relative to the other businesses for a couple quarters. What is kind of that strategy here to turn things around or is it more market driven? Thanks.

I would say it is both market driven and positioning of our business. We are very committed to the packaging coatings market, it has been one of our best markets. We are going to be aggressive in this business to make sure that the new technologies that are coming in with the BPA free coatings, that we have we think an excellent opportunity to grow our position in the market.

And so, we are taking the view that our participation and growth in packaging coatings, albeit a mature market overall other than in the emerging regions, is going to improve and increase as we go forward.

Edlain Rodriguez, UBS.

Chalk, one quick question on auto OEM. You continue to outpace the industry rate and I think previously you had mentioned that technology is the key driver. If that is the case should we expect that outperformance should continue in the foreseeable future?

We still feel that we have very good momentum in the business both -- at all layers and in all regions, but especially where we have seen a lot of new automotive assembly operations. We are still very optimistic on the Chinese automotive market. We think we are still in the middle stages of very good growth in that market.

And we are seeing our water-based technologies, our compact processes that eliminate one of the primer coating layers, our electrodeposition primers that are world-class and new over the last two years in terms of corrosion protection and efficiency for the automotive manufacturers. We see these trends continuing.

So we feel good about our position and the opportunities to continue to grow nicely in our business on the backs of these technological innovations.

Okay and just to follow up. As you talk about that initial recovery in commercial construction, I mean how confident are you that this is for real? And are there any risks there for something to go wrong?

Well, I think that commercial construction has been probably lagging for now I would say six -- five or six years here in North America. And if you look at the architectural billing indexes, many of the commercial construction indicators are beginning to turn around, we have discussed kind of the order book and backlog for our flat glass business, which is one of the best indicators out there. And our improving activity levels in Architectural Coatings.

So at this point here in the US market I think the trends are there. Can things occur that derail it? Possibly. Interest rates are at this point still quite benign here in this market. Employment levels, another important indicator, they are up here in the US. So I think the commercial construction market here looks solid.

And in some of the other regions we haven't seen as much of a lag and we are not expecting as much of a push now in markets like Europe or China from commercial construction, although we think the markets are -- have at this point normal activity levels. But we are seeing the opportunity for improvement here in the US market.

Okay, thank you.

Laurence Alexander, Jefferies.

This is George D'Angelo on for Laurence today. Could you guys provide an update on margins in the Akzo business and where you are seeing that over year end going?

George, this is Michael. It is consistent with where we saw it in the second quarter, so it is low-double-digits right now, which is a significant improvement from this marginally negative number they had when we bought it.

Okay, thanks. And just a follow-up, I know this is a question you guys have gotten in the past, but Glass is a non-core business. Are you guys open to selling it? And if so, when would you sell it?

Well, we haven't really put a timetable on it. As we have stated in the past on many of our non-coatings businesses, we would be open to discussions or transactions that create value for our shareholders. But we do not have any discussions going at this point on those businesses.

Thanks.

Dmitry Silversteyn, Longbow Research.

Can you give us a little bit of detail? You talked about the Chinese market being a strong market for you in consumer products, you mentioned auto OEM and auto aftermarket. Can you talk about the architectural growth both in China specifically but also in Australia and Asia in general?

Dmitry, this is Michael. In China in the third quarter we grew low-double-digits. So it was a nice performing quarter for us there. Australia we grew mid-upper-single-digits. So we had new product launches in Australia, did very well there. So both of those market segments not only grew and also had improving bottom line as well.

That is not just on the architectural side, correct?

That is on the architectural side specifically. As far as Australia for our other businesses, they also had a very good quarter. It is growing and I would put it more in the low-single-digits rates for those businesses. And for our Chinese business, as you know, for our other ones it predominantly serves a local market. So it is a growing market. We had success in all our businesses.

Okay. If I remember correctly, and perhaps I am mis-remembering, but your Chinese architectural business was not growing as strongly in the first half of the year. If that is correct and you are seeing low-double-digit growth there in the third quarter, sort of what changed given that the economic conditions in China probably didn't change for the better?

No, it was growing in the earlier part of the year as well.

It was, okay. I must be mis-remembering. All right and then just a follow-up --.

It is a small business, Dmitry, don't forget that.

I understand that. On the automotive OEM, Chuck did a very good job outlining sort of the new products and the initiatives that you have driving your above market sales. But if you kind of look at the 3.5% industry sale that is referenced versus your growth which is about double that.

How much of that incremental growth, if you will, above the market is driven by the initiatives that -- the PPG initiatives that Chuck described? And how much of it is you being just partnered with your consumer -- with your customers that may be gaining share because of faster relative growth of their brand?

Well, we have a fairly broad industry representation. We serve almost all of the global OEMs. We have done quite well in China, which is one market where you see a lot of domestic manufacturers, we have done well there. And we have seen in some of the markets where we have been well-positioned in markets like North America where you see the truck and SUV markets have been probably the strongest segments. So that has helped us.

We also have good participation with the Japanese OEMs outside of Japan and especially here in North America and Europe. And as you see the migration of those Japanese auto builds from a domestic production in Japan exported to the rest of the world, they have put more of their production capacity outside of Japan. And that has given us a good opportunity to increase our participation in those Japanese OEMs as they globalize their manufacturing footprint.

Okay, thank you, Chuck.

Jeff Zekauskas, JPMorgan.

There have been some I guess changes in ownership in the automotive OEM coatings area. And I was wondering, when you look at the evolution of that industry, do you think it will be harder for you to take share or easier or the same? Is the industry competitive climate roughly the same or is it different?

I would say the industry competitive climate has always been -- I would say, has always been there. It has been what I would call a high competitive intensity. Fewer players but high competitive intensity. We see that continuing.

And if I look at growth rates and participation in markets in Asia, as an example, I see a continuation of those trends. Although here again, we have been able to do well in these markets despite what I would call large global competitors and I expect that activity to continue, Jeff.

Okay. And then for my follow up, Europe did slow from 3% to something like flat growth or flat to up growth. Is this a one-off event or when you look at your European business over the next three or four quarters do you expect it to flatten out?

You will be up against tougher comparisons because of weather, all things being equal. And it seems that economic growth has slowed down. And will that change your approach to, I don't know, removing costs or investing in the business?

Well, if you look at a couple of the macro events in the region, and so for us our European business includes Eastern Europe and Russia, it includes the Middle East and Africa. And we think that there has been some moderation obviously of growth in -- our Eastern European business has continued to be good relative to the overall market.

Russia has obviously weakened some. The Middle East is a difficult market right now. And in Africa, although it is a smaller part of that overall region for us both with port congestion, Ebola and other things, there are some macro or geopolitical trends right now in Europe that are going to moderate those growth rates.

So we are going to focus more on cost reduction productivity as we have. And if we see things beginning to weaken we will become more active on cost reduction. I think as we said, Europe for us in September and here in early October has been a -- what we would call normal or consistent trends.

Certainly we weren't in a high-growth rate in any of those markets with the exception of what we experienced I think in the first quarter of this year when we got a little bit of favorable weather that helped the architectural business. So we are going to hunker down if we need to and work on costs here in Europe to keep this very good earnings trend going even if the growth rates are -- continue to be as modest as they have been this year.

Okay, thank you so much.

P.J. Juvekar, Citi.

Back in May during your Analyst Day you talked about rebranding in the independent dealer channels. And can you just talk about how is that rollout going and what kind of growth are you seeing in that particular channel?

P.J., this is Michael. We are starting that as well as the rebranding in the Company owned stores. And we said in an earlier question that the independent dealer market was very modestly lower, so I think a minus 1 kind of number to think about. So it has helped, but we haven't rolled it out completely but it is in progress.

Thank you. And then in the refinish market there is a big consolidation going on with the multi-shelf operators like Service King. So can you talk to us about what is your position with those customers?

We have a very good position with the multi-shop operators. Service King in particular now -- there is ownership changes I think in that market and with that customer with private equity. But overall PPG's position in North America with multi-shop operators is very strong. There has been consolidation but we have continued to benefit from the trends.

And it is a growing trend we think over the next few years to see more consolidation as you move across the value or supply chain in refinish. But right now we feel we are well-positioned in this market to take advantage of any acceleration of the existing trends.

Thank you.

James Sheehan, SunTrust.

Wondering if you could comment on the opportunity in interior can coatings? Could you just size the opportunity for us in 2015?

Size the opportunity in terms of overall market or sales?

Overall -- yes, the sales that you might expect to generate, yes.

Well, I would again mention that this is packaging coatings business, important market for us. It's one of our smallest business units, however. And traditionally we have been less present on the inside of the can. And if you look overall at the market we are -- this is probably around on the order of magnitude of less than a $5 billion overall market.

And we think that if you look at the opportunity for us we can probably grow our position by double-digits over the next few years, especially with the introduction of new technologies with BPA free.

Thank you. And just on the Comex process. What are the next steps for that? Are you reasonably certain that all the information has been collected and you are just waiting on an answer? Or does there need to be any more hearings? What can we look for?

This is Michael. So the way that works is once a week they publish an agenda, so they will publish an agenda Friday, tomorrow for next week. All the questions have been asked and answered. We're obviously waiting on them to put it formally on the agenda. They have not asked any questions in the past 7 to 10 days.

So we are in a wait mode right now. We feel confident that given the fact that we have negligible presence in Mexico that they will look favorably upon this transaction.

Thank you very much.

Nils Wallin, CLSA.

Curious about the effect of raw materials. Obviously you highlighted that with oil coming down that you might see some relief on your raw material for the next quarter or two. How will that impact your ability to hold price for your products? Will you be able to hold price for a few quarters after that or will you have to give up price almost immediately too?

Typically there has been a lag in our industry both on the upside or the downside. But I would tell you oil at the wellhead price is not a direct raw material input for us.

So I would tell you that it depends on what is happening downstream in the petrochemical change so that you can get a lower oil price. But it may take a while and then it depends on what is happening in some of our monomer polymer costs to see when those oil wellhead prices really translate to either lower gasoline or lower propylene cost.

Understood. Also would you help us -- give a little bit more color what you mean by active when you refer to your active pipeline. Are you seeing more people come to you? Are you seeing more properties with an attractive price? What do you mean by active?

Well, active I would describe as, one, there is probably more auction activity today. So if you look at kind of the larger space, and I am talking globally now, there is probably now several more auctions or properties that are actively being marketed for sale and they are also good.

We always try to have a consistent dialogue with any coatings companies that may potentially now or in the future want to sell. And I would say those discussions have been more active. But we are also seeing auction activities that would demonstrate that the pipeline for us or the activity level in the coatings space is there.

Understood. And there is just a follow up. Would you sense that given what you see today in this activity that a year from now there could be an acceleration in how much M&A you have done? Or is it just an indication that the market has sort of -- that has been dry sort of opening up again?

I would say you have seen some transactions announced over the last year. We have done a number of them, probably five or six here almost all in the US, smaller transactions. I would say that if the pace of activity continues you are going to see over the course of the of the next year or two probably similar levels of activity and some larger transactions.

And I would say that if you described ours as bolt-ons, I would say that you are going to see some slightly bigger transactions even if they are not kind of megadeals. So I would be surprised if we didn't see more announced transactions, both on the part of PPG or potentially others in the market over the next 12 to 18.

Thanks very much, that is helpful.

Christopher Perrella, Bloomberg Intelligence.

A follow-up to the M&A activity. With your targeted I guess returning $3 billion to $4 billion through acquisitions and share repurchases, if the acquisition pipeline doesn't pan out as planned would that indicate more share repurchases to hit that $4 billion number by the end of next year?

Yes.

All right. And for the Glass business, have you done all the rightsizing of that business? And now the only thing left is for activity volumes to pick up there or are there more levers to pull in Glass?

I think that there are still some more levers to pull as we try to improve the overall performance of the assets. And I think we indicated in the third quarter, although we had improving let's call it operating performance in the flat glass business, we still struggled on the fiberglass side with our operation.

So there is certainly an opportunity there to improve the performance of that business, which is about half of the overall Glass business. And I think we have some opportunities more broadly to improve the performance and the asset base of those businesses over the next couple of years.

All right. And quickly on Comex. Is there a legal deadline that the Commission as to make a decision on the application?

Yes, right now they have to respond by the middle of December.

Thank you very much.

Eugene Fedotoff, KeyBanc Capital Markets.

Just to follow up on the comments around the Glass business. I think you said that natural gas costs were very heavy in the quarter. Do you expect natural gas costs to turn positive in fourth quarter or should prices stay at around the same level?

Eugene, this is Vince. It will still be a slight negative, but the first quarter last year saw a significant increase in natural gas costs from the first quarter of 2014. So if prices stay where they are today it would be a tailwind in the first quarter of 2015.

All right, thanks, Vince. And just a question on US architectural business. The [spending] season it seems like is extending a little bit longer versus last year. And you are anniversarying some store closing, also doing some rebranding. So are you expecting year-over-year growth to accelerate in that business in fourth quarter?

We expect to see continued modest growth in our business in the fourth quarter. But remember, it is a seasonally weaker quarter to begin with as the paint season typically winds down.

Okay, thanks.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Mr. Vince Morales for any closing remarks.

I just want to again thank everybody for their time and participation today. If there are any further questions please contact me in the Investor Relations function. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.