PPG Industries, Inc. (NYSE:PPG) Q1 2022 Earnings Convention Name April 22, 2022 8:00 AM ET
Firm Contributors
John Bruno – Investor Relations
Michael McGarry – Chairman and Chief Govt Officer
Tim Knavish – Chief Working Officer
Vince Morales – Senior Vice President and Chief Monetary Officer
Convention Name Contributors
Christopher Parkinson – Mizuho
Ghansham Panjabi – Baird
David Begleiter – Deutsche Financial institution
John McNulty – BMO
Stephen Byrne – Financial institution of America
Vincent Andrews – Morgan Stanley
Josh Spector – UBS
Michael Sison – Wells Fargo
Frank Mitsch – Fermium Analysis
Arun Viswanathan – RBC
Jeff Zekauskas – JPMorgan
Kevin McCarthy – Vertical Analysis Companions
PJ Juvekar – Citi
Mike Harrison – Seaport Analysis Companions
Jaideep Pandya – On Discipline Analysis
Operator
Good morning. My identify is Sam and I will probably be your convention operator at present. At the moment, I wish to welcome everybody to the First Quarter PPG Earnings Convention Name. [Operator Instructions] Thanks.
I’d now like to show the convention over to John Bruno. Please go forward, sir.
John Bruno
Thanks, Sam, and good morning, everybody. As soon as once more, that is John Bruno. We respect your continued curiosity in PPG and welcome you to our first quarter 2022 monetary outcomes convention name.
Becoming a member of me on the decision from PPG are Michael McGarry, Chairman and Chief Govt Officer; Tim Knavish, Chief Working Officer; and Vince Morales, Senior Vice President and Chief Monetary Officer.
Our feedback relate to the monetary data launched after U.S. fairness markets closed on Thursday, April 21, 2022. We’ve posted detailed commentary and accompanying presentation slides on the investor slide of our web site, ppg.com. The slides are additionally accessible on the webcast web site for this name and supply extra help to the transient opening feedback Michael will make shortly. Following administration’s perspective on the corporate’s outcomes for the quarter, we will transfer to a Q&A session.
Each the ready commentary and dialogue through the name might comprise forward-looking statements reflecting the corporate’s present view of future occasions and their potential impact on PPG’s working and monetary efficiency. These statements contain uncertainties and dangers which can trigger precise outcomes to vary. The corporate is beneath no obligation to supply subsequent updates to those forward-looking statements. This presentation additionally accommodates sure non-GAAP monetary measures. The corporate has offered within the appendix of the presentation supplies, which can be found on our web site, reconciliations of those non-GAAP monetary measures to probably the most instantly comparable GAAP monetary measures. For extra data, please check with PPG’s filings with the SEC.
Now, let me introduce PPG Chairman and CEO, Michael McGarry.
Michael McGarry
Thanks, John, and good morning, everybody. I’d prefer to welcome everybody to our first quarter 2022 earnings name. I hope you and your family members are remaining secure and wholesome. To say that these have been troublesome and difficult occasions for therefore many can be an enormous understatement. For the reason that starting of the battle in Ukraine, we’ve got been centered on defending the well being and security of our workers and their households from Ukraine in addition to our workers in Russia. PPG and the PPG Basis have additionally dedicated greater than $800,000 to humanitarian aid in addition to longer-term restoration help.
As well as, PPG workers have additionally been offering direct help to these in want, together with taking refugee households into their houses. The battle has additionally made it essential to reduce and now wind down our operations in Russia. In consequence, we’ve got recorded a pre-tax cost of $290 million for impairment of considerably all of our firm property associated to our Russian operations. For context, web gross sales in Russia represented roughly 1% of whole PPG web gross sales for the 12 months ending December 31, 2021. We are going to proceed to carefully monitor developments within the area.
Earlier than I present the common quarterly evaluation of our outcomes, I’d like to supply a concise abstract of the important thing points impacting our enterprise within the quarter as we glance forward.
Through the first quarter, we had two main occasions: the Ukraine-Russia disaster and elevated COVID-19 restrictions in China, which have created some new uncertainties about total regional demand and attainable world carry-on results. You will notice attributable to these elevated uncertainties, we’ve got widened our earnings steering vary we offered for the second quarter.
However these two main occasions are different longer standing world impacts which have affected our monetary outcomes for a number of quarters and that are abating or ratably bettering. Particularly, we proceed to expertise enhancements in our provide chain and our uncooked materials availability. Moreover, exterior of China, COVID restrictions have continued to lower in lots of elements of the world.
As an organization, we’ve got continued to enhance our pricing realization in each tempo and cadence. This has been essential to battle the persistence and breadth of inflation. Our value seize this cycle is far sooner and we at the moment are pricing within the second quarter for second quarter inflation impacts, so we’re mainly pricing in actual time.
We proceed to ship good earnings leverage when we’ve got bettering volumes. Whereas lots of our companies and areas haven’t totally recovered from the pandemic, as a matter of reality, we’re nonetheless down about 5% in combination. Nevertheless, when a enterprise does ship quantity enchancment, we’re realizing good backside line positive aspects. This displays the arduous work from our groups on managing our working prices and SG&A.
Lastly, we had a really stable month of March from a monetary returns perspective. We’ve said many occasions that March is a very powerful month within the first quarter given the seasonality of our companies. Our month of March monetary returns are the perfect return because the second quarter of 2021. I’ll now transfer to supply some feedback to complement the detailed monetary outcomes we launched final night. For the primary quarter, we delivered file web gross sales of $4.3 billion and our adjusted earnings per diluted share from persevering with operations had been $1.37.
To rapidly summarize the quarter, our gross sales efficiency was higher than our January steering regardless of sudden impacts from the disaster in Europe, COVID-related disruption in China and persevering with logistics bottlenecks. Greater than offsetting these sudden macro points was stronger than anticipated demand throughout lots of our companies as regional economies and end-use markets proceed to get well from the pandemic impacts. Above market gross sales volumes had been achieved in a number of of our end-use markets, together with our PPG-Comex enterprise, which through the quarter, opened their 5,000th concessionaire location in Mexico.
First quarter gross sales in Latin America had been a file. As well as, our automotive refinish enterprise carried out properly with sturdy gross sales volumes within the U.S. and Europe. Additionally, our aerospace enterprise benefited from year-over-year preliminary enhancements available in the market and we count on additional trade demand development as we’re nonetheless properly beneath pre-pandemic ranges.
Our adjusted earnings had been considerably above the higher finish of our January monetary information as we delivered sturdy earnings leverage on the higher-than-expected gross sales volumes. This leverage was a results of bettering manufacturing efficiency as COVID-related absenteeism subsided considerably as we progressed by the quarter and we skilled growing uncooked materials availability.
As well as, our promoting value will increase elevated 10% year-over-year, marking the twentieth consecutive quarter of upper promoting costs. Our promoting costs are up over 12% on a 2-year stack foundation versus the primary quarter of 2020, reflecting our continued actions to offset generationally excessive inflation. Our current acquisitions additionally carried out properly, together with the conclusion of focused synergies. The Tikkurila enterprise delivered year-over-year gross sales development of greater than 10%, excluding our Russian operations.
Our Site visitors Options enterprise additionally achieved higher than 10% gross sales development and our first quarter gross sales had been a file and the enterprise continued to have a big order backlog as we entered the second quarter.
Through the quarter, we additionally launched a big expanded Professional Painter initiative with The House Depot. And regardless of persevering with uncooked materials constraints proscribing our capacity to completely load stock, we now have our full Professional Paint assortment accessible in about 60% of their shops. We count on to have all The House Depot shops loaded within the coming months. We’re excited in regards to the development alternatives that this initiative gives and have already acknowledged some important new skilled painter enterprise positive aspects.
Our earnings and margins proceed to be impacted by elevated ranges of inflation and provide disruptions. Within the first quarter, our promoting costs did offset year-over-year uncooked materials inflation, however didn’t offset inflation from different sources, together with logistics, power and labor and we didn’t totally get well prior 12 months inflation. Sequentially, versus the fourth quarter 2021, our total margins improved by greater than 200 foundation factors. We’re focusing on continued quarterly sequential margin enchancment within the second quarter as properly regardless of additional will increase in uncooked materials and logistics inflation.
We’ve continued to optimize our industrial processes the final 2 years and as talked about at the moment are nearer to real-time pricing relative to inflation. Attributable to larger crude oil and power costs, we’re implementing incremental promoting value will increase within the second quarter and count on that we are going to exit the second quarter offsetting all inflation classes on a run fee foundation. This drives our expectations for working margins to sequentially enhance additional because the 12 months progresses.
In a number of companies, we proceed to face sure uncooked materials shortages leading to our total gross sales backlog rising to about $180 million exiting the quarter. The order backlogs are the best in our aerospace and automotive refinish companies. Moreover, these are two of our many industries we provide the place stock ranges are extraordinarily low all the best way to the tip shopper.
We’ve continued to manage our controllables and as soon as once more lowered our SG&A as a share of gross sales, lowering by about 40 foundation factors in comparison with the primary quarter 2021. This included supply of a further $15 million in value financial savings from current restructuring applications and acquisition synergies. That is additionally regardless of increasing our multiyear funding in our superior digital capabilities. And we’re experiencing rising digital adoption from our prospects, most notably within the architectural coatings enterprise.
Within the first quarter, our web debt elevated primarily because of the larger greenback worth of stock reflecting inflationary results. The seasonal working capital improve within the quarter was according to pre-pandemic years. We count on our money stream era to match prior 12 months finish developments, which is to eat money early within the 12 months and generate sturdy money stream as we progress by the tip of the 12 months. Strategically, on April 1, we accomplished the acquisition of Arsonsisi’s Powder Coatings enterprise, persevering with our concentrate on rising our powder coatings manufacturing capabilities. As well as, we divested some architectural coatings companies in Africa as we proceed with our legacy evaluating all regional companies and product strains to make sure that they proceed to have strategic worth and meet our monetary hurdles.
Within the first quarter, we continued to take extra measurable steps to additional advance our ESG program by issuing our inaugural DE&I report. Whereas I’m pleased with what we’ve got achieved, we all know that there’s extra work to do and extra areas of alternative to concentrate on. When you’ve got not already completed so, I’d encourage you to learn our report and study extra about what we’ve got completed and our aspirational targets for the longer term that are outlined in our presentation supplies.
Wanting forward, whereas our underlying demand continues to be stable in most of our end-use markets and areas, second quarter financial exercise, particularly in Europe, has began to melt as shoppers stay cautious primarily based on the present geopolitical points within the area. As well as, manufacturing provide chains have been not too long ago impacted in China attributable to extreme restrictions from rising COVID instances. In the previous few weeks, as much as 5 of our smaller manufacturing websites have been mandated to shutdown attributable to restrictions plus our principal Protecting & Marine Coatings manufacturing facility. We’re working in each of those areas to handle our operations and prices are reflective of those present macro challenges. We’re additionally assessing impacts each constructive and unfavourable these challenges might have on uncooked materials provide and prices.
As talked about earlier, we count on additional sequential inflationary pressures on uncooked supplies, logistics and power. Our 2-year stacked uncooked supplies inflation anticipated to exceed 35%, however solely up low to mid single-digit sequentially versus the primary quarter. We’re implementing additional promoting value will increase in all of our companies and count on a faster offset versus historic lags. As a result of heightened ranges of uncertainty, our earnings steering considers a wider vary of outcomes for the second quarter. Extra usually, our steering assumes that restrictions in China ease considerably in Might and that geopolitical points don’t broaden past the present Russia-Ukraine boundaries.
Whereas the present setting stays troublesome to foretell, I count on that as 2022 progresses, we are going to start to expertise an easing in provide chain disruptions, basic stock rebuilding throughout many finish use markets and nonetheless a wholesome shopper prepared to spend, particularly in North America. The longer term PPG earnings catalysts that I referenced on the January earnings name stay intact and we actually see a path to return to prior peak working margins with alternatives to exceed them. This contains continued restoration within the automotive refinish, OEM and aerospace coatings companies; normalization of commodity uncooked materials prices, which ought to reasonable over time given provide dislocations are bettering and there’s a softening in sure regional economies. As demonstrated this previous quarter and supported by our decrease value construction, sturdy working leverage on any gross sales volumes development, accretive earnings development from our current acquisitions from each their historic base earnings and additional synergy seize; above market natural development pushed by our benefit and main manufacturers, applied sciences and providers.
In closing, as we glance forward, I stay assured in regards to the firm’s future. I strongly imagine in our staff of fifty,000 workers as we work to do higher at present than yesterday on a regular basis. The best way our workers have handled the pandemic and our serving to through the Ukraine humanitarian disaster and are navigating by a really difficult enterprise setting are a first-rate instance of how the staff is making it occur. Thanks on your continued confidence in PPG. This concludes our ready remarks.
And now, Sam, would you please open the road for questions?
Query-and-Reply Session
Operator
Completely. [Operator Instructions] Your first query comes from the road of Christopher Parkinson with Mizuho. Christopher, you possibly can proceed together with your query.
Christopher Parkinson
Nice. Thanks a lot. Are you able to rapidly give us extra granular replace on the varied inputs because it pertains to, I’d say 2Q and the second half inflation outlooks and in addition to the persistence – excuse me, of sure enter shortages on a quarter-to-quarter foundation? Thanks.
Michael McGarry
Chris, what I’d inform you is that our enter shortages stay according to what we’ve got seen beforehand. Motions are typically on the high of the checklist. We’ve had some intermittent, due to manufacturing points with TiO2, these points have all been resolved. Pressure majeures, after we had the final name, they had been over 100. We’re right down to about 50 now. We’ve seen improved reliability in Europe. We’ve seen improved reliability, unique of the Shanghai space, for Asia. And we’re nonetheless seeing some difficult with trucking right here within the U.S. However sequentially, we do see the tempo of inflation coming down. And what’s most essential is that our pricing is accelerating and is in a way more real-time foundation.
Operator
Your subsequent query comes from the road of Ghansham Panjabi of Baird. Ghansham, please proceed.
Ghansham Panjabi
Thanks. Good morning, all people. May you simply give us a bit extra colour on a real-time foundation by way of what you’re seeing each in Europe and China each from a requirement and provide chain standpoint and particularly, which companies are being most impacted? After which associated to that, simply given all of the complexity on the planet and your sturdy capital place, how are you now fascinated by share buybacks at this level in context of, clearly, the strikes within the inventory and your friends this 12 months, any adjustments to that versus acquisitions? Thanks.
Michael McGarry
Okay. Ghansham, let’s begin with the share buyback query first. We’re all the time going to look to optimize shareholder worth. Our pipeline of acquisitions stays lively. However clearly, on the share value, we’re going to stability what’s most accretive to the shareholders. And so we’re taking a look at each.
And with reference to China and Europe, what I’d inform you is the automobile state of affairs in China is being impacted most likely slightly bit greater than a number of the different markets. We do regard that as transitory. We’re totally anticipating as we’ve seen in different situations. Persons are going to be way more all for driving themselves taking mass transit. So we do count on automobile restoration in Europe and is the most important automobile market on the planet. And they’re additionally shifting from inner combustion engines to electrical automobiles sooner than a number of the different markets. And naturally, as , we’ve got extra content material on electrical automobiles and we do inner combustion engines.
So we really feel optimistic about that. So clearly, we’re involved in regards to the rising variety of COVID instances. It has plateaued within the final 2 or 3 days. We’ve gotten all, however two of our vegetation again up and working. And we count on to get the opposite two vegetation up and working within the subsequent 3 to five days, I’d say, if we’re being slightly bit optimistic right here. However total demand in China stays good. I don’t suppose the Chinese language economic system can afford to have GDP within the low single digits. That’s not good for them. And I do count on the federal government to be aggressive in offering a business-friendly setting popping out of this most up-to-date COVID state of affairs.
After which in regard to Europe, clearly, probably the most regarding space for Europe is DIY. We predicted this. That is according to what we’ve got advised. We proceed to have a powerful Professional Painter backlog. However DIY and site visitors by the big-box shops in Europe is the one indicator that we’re watching out.
Vince Morales
Ghansham, that is Vince. I believe if we predict extra broadly as we put collectively our Q2 forecast, we do count on China to – a number of the COVID restrictions to ease within the early a part of Might and proceed to ease by the stability of the quarter, however they’re actually restrictive proper now. We all know there’ll be some carry-on results with respect to logistics and transportation import availability properly into Might. In order that’s baked into our steering.
In Europe, once more, we’re involved about – possibly overly involved, however we’re involved in regards to the impact on shopper of power costs and simply the general setting. So our forecast has baked a few of that passiveness – shopper passiveness into Q2. We hope we’re being a bit bearish, however that’s what we’ve forecasted and we are going to see how the playing cards fall as we undergo the quarter.
Operator
Thanks, Ghansham. The subsequent query is from the road of David Begleiter of Deutsche Financial institution. David, please proceed.
David Begleiter
Thanks. Good morning, Michael and Vince. Guys, simply on U.S. architectural, are you seeing any discounting by your opponents? And if that’s the case, how are you responding to this extra aggressive pricing setting doubtlessly? Thanks.
Michael McGarry
Okay. David, I’m going to – we’ve got Tim right here. I’m going to let Tim deal with that query.
Tim Knavish
Hello, David, Tim Knavish right here. Look, in our architectural U.S. enterprise, the truth is, our architectural enterprise is around the globe. We proceed to get growing sequential pricing. And that pricing, whereas by no means straightforward to get, is being accepted by our prospects. And we – our prospects have to stay aggressive each day. So we are able to assume that we’re seeing that very same type of conduct from others available in the market. So we’ve got not seen what you name discounting available in the market. I believe the trade realizes what’s happening upstream of us and performing accordingly.
Operator
Thanks, David. The subsequent query is from John McNulty of BMO. John, please proceed.
John McNulty
Sure. Thanks for taking my query. So on the pricing entrance, Michael, you type of indicated you’re virtually at some extent the place it’s real-time pricing. I assume what are the mechanisms in place that you simply’ve put in order that we are able to really see that real-time pricing? And I assume to that additionally, when the uncooked supplies finally or hopefully subside, do you give again a few of that pricing in actual time? Or is that one thing the place we may even see the extra conventional lag and even stability in the case of value? I assume, how ought to we be fascinated by that?
Michael McGarry
Properly, John, to begin with, we’re not going to be giving this pricing again. As , we’re nonetheless lagging. In case you have a look at this on a 2.5-year stack, so there’s loads of restoration. And the explanation that we’re in a position to get extra real-time pricing than ever earlier than is it’s unattainable for our prospects to argue with what’s happening, proper? They totally see the identical issues that we’re seeing. They’re seeing power costs go up. They see uncooked supplies that we purchase, they’ll see it in their very own techniques going up. They’ll see transportation going up, they’re paying for transportation. They usually additionally can’t argue that our opponents aren’t pricing.
So from that standpoint, many of the bullets that they often attempt to fireplace at us, that our salespeople attempt to keep away from, that’s not occurring. And now it’s not a matter of can we take a value improve? Now it’s about how a lot of a value improve are you going to take. And the opposite factor that we’ve completed way more aggressively than we ever have is withhold shipments. So we’re telling folks, that is the brand new value. And for those who don’t prefer it, please don’t place buy orders. And if the acquisition orders are available in with out the brand new value on it, we’re sending these buy orders again. And that has gotten the eye of our prospects and so they perceive that we want aid and we want aid now. And so you would see that there’s a palpable power within the air to get value will increase as we’re doing it. So while you see oil at $107, our prospects are getting priced like that. So I’m actually happy our gross sales groups have gotten significantly better at pricing than ever within the historical past of the corporate.
Operator
Thanks, John. The subsequent query is with Stephen Byrne of Financial institution of America. Stephen, please proceed.
Stephen Byrne
Sure. Thanks. Michael, I’d prefer to drill in slightly extra on this relationship with House Depot. Michael, you talked about the 60% stage of a specific metric. I didn’t catch what that was. However I’m positive there’s many, many steps concerned within the rollout of that relationship. And a pair I wished to ask you about was what number of of these 2,300 House Depot shops does PPG even have a distribution middle accessible within the neighborhood to satisfy orders? After which possibly one other one can be what number of of these shops have your reps already began to achieve out to contractors which are shopping for supplies in The House Depot, however not paint, as recognized by these respective professional desks at these respective House Depots?
Michael McGarry
Okay. Stephen, I’m going to only inform you the 60% referred to, we’ve solely been in a position to inventory 60% of their 2,300 shops, and I’ll let Tim add extra colour to it.
Tim Knavish
Sure, Stephen. Look, this system is – whereas it’s in 60% of the shops will proceed to ramp up as we transfer all through the following a number of months as provide state of affairs improves and we proceed to construct stock. We’ve bought our full professional commerce workforce engaged throughout what’s now an omni-channel between our personal community and the THD community. And we’re starting to see buyer conversions already. That can proceed to develop as we study, as The House Depot associates study and because the provide continues to construct, and we are going to pivot as essential. However we count on this to proceed to develop all year long by a mix of load-in and conversion of contractors. After which we count on this to be a long-term, multiyear development initiative for each us and The House Depot within the Professional class.
Vince Morales
And Steve, once more, simply extra broadly, and we talked about this on our January earnings name. We predict this relationship and this prolonged partnership actually provides us a significantly larger market entry. And once more, we’re actually focusing on availability for the skilled painter each day. And as Tim talked about, that omni-channel method that may come to our shops, they’ll go to our sellers or they’ll go to House Depot, and that’s all inside an in depth proximity of their job web site.
Michael McGarry
And Stephen, that is Michael. The very last thing I’d add is, look, in the beginning of the day, each time we go into a brand new market with House Depot, we get substantial new wins proper out the gate. And what that does is it builds pleasure amongst The House Depot staff and their confidence stage grows as a result of what they do is they begin creating these profitable tales throughout every of the completely different markets. And that’s probably the most thrilling factor about it.
Operator
Thanks for the query, Stephen. Your subsequent query is from Vincent Andrews of Morgan Stanley. Vincent, please proceed.
Vincent Andrews
Thanks very a lot. Michael, I’d be curious to get your up to date ideas on kind of the house enchancment market simply given since our final name there’s been a giant transfer in rates of interest and housing market appears tight nonetheless. So how do you – do you suppose the rising rates of interest issues in any respect by way of architectural paint demand and renovation? Or how ought to we be fascinated by the evolving housing market?
Michael McGarry
Okay, Vincent, I’ll let Tim touch upon this.
Tim Knavish
Sure. Look, there’s – proper now, there’s such a powerful backlog, notably on the residential aspect. There may be so many partitions to be painted but, however actually not any near-term concern for ours. And even, clearly, rising rates of interest, there’s going to be some mortgage and affordability influence there, however there’s such a scarcity of total housing in multiunit housing. Multiunit housing continues to climb regardless of the rate of interest rises. Residential permits proceed to climb right here within the U.S. regardless of the rate of interest rises. So completely, it’s one thing that we’re watching. However we’re actually bullish on that for at the least the remainder of this 12 months, and we are going to see past that.
Michael McGarry
And Vincent, that is Michael. The one factor I’d add to that’s that we do a Professional Painter survey, and that Professional Painter survey continues to point out a really sturdy backlog of our skilled painters. So we’re very involved about affordability greater than rates of interest. However on the finish of the day, our Professional Painters nonetheless present fairly good backlog.
Tim Knavish
Sure, the truth is, our final Professional Painter survey which we simply wrapped up, 75% of the painters had a backlog that was at the least as massive or larger than what that they had 90 days and a 12 months in the past, so actually no influence on the brief to medium time period.
Operator
Thanks, Vincent. Your subsequent query is with Josh Spector of UBS. Josh, please proceed.
Josh Spector
Sure. Hello, guys. Thanks for taking my query. A variety of buyers are centered in your remark final name about EPS in 2023 maybe higher than $9 per share. You didn’t essentially reiterate that at present. Simply curious, primarily based on what you’re seeing from a value value dynamic but additionally a requirement setting, is that one thing that’s nonetheless achievable? And is that achievable in a state of affairs that you simply lay out the place China lockdown influence maybe keep over the following couple of quarters, however Europe maybe enters right into a minor recession.
Michael McGarry
Sure. Josh, I’d inform you that the dynamics for $9 stay legitimate, proper? So we’re going to have an bettering refinish market. That’s an excellent enterprise for us. Miles pushed, we’re really virtually again to 2019 ranges within the U.S. We see miles pushed enchancment in Europe as properly. So from that dynamic, refinishes in stable form. You see the numbers for aerospace. TSA bookings are all up. Aerospaces proceed to get stronger. You most likely seen yesterday, Boeing stated they had been going to begin rebuilding or constructing 787s once more. That’s a constructive. There’s a sturdy backlog of planes. Our share with Airbus has continued to develop. So I believe that’s glorious. We’re solely producing most likely about 80 million automobiles this 12 months. And so when you concentrate on what the run fee of automobile ought to be, we’re nonetheless very bullish that automobile builds within the U.S. have been muted due to lack of chips, lack of elements. And so that is going to get higher. So total, I’d inform you that we’re in fine condition. Our synergies are going to be persevering with to return in, productiveness is continuous to enhance. So I really feel superb, I really feel very snug round $9. And the worth raws, we’re going to be previous that within the second quarter. We’re going to be pricing previous all of it. After which we’re going to be catching up on the early 2021 type of inflation. So we’re heading in the right direction.
Operator
Thanks. Subsequent query is from Michael Sison of Wells Fargo. Michael, please proceed.
Michael Sison
Hello, guys. Good begin to the 12 months. Traditionally, third quarter tends to kind of seasonally decline from 2Q, but it surely sounds just like the pricing rise goes to get higher as you famous. So is that this 12 months going to be slightly bit completely different the place it’s best to proceed to see EPS enchancment? I perceive it’s type of robust to information past one quarter, however type of given so the potential for bettering volumes and your kind of pricing mechanism, is that one thing that doubtless occurs this 12 months versus historic patterns?
Vince Morales
Sure, Mike, that is Vince. Most likely probably the most essential metrics we’re watching is sequential margin enchancment. And I believe from This fall to Q1, you noticed our margins transfer up 200 to 300 foundation factors, relying on the phase. We predict that’s the true indicator of how properly we’re doing, how properly the trade is doing. It’s actually arduous year-over-year at this level to match. So once more, we’re wanting sequentially. And once more, we’re very proud with our efficiency This fall to Q1. We do count on – once more, there’s plenty of noise in 2021. There’ll be extra noise this 12 months. So we do count on, as you’ve heard Michael within the opening, some enchancment in demand, as we undergo the 12 months, particularly as China comes again. We’re seeing refinish, aerospace, etcetera. Nevertheless it’s actually going to be arduous to match versus historic patterns. And once more, we’re simply wanting sequentially. Our margin’s getting higher This fall to Q1, Q1 to Q2 versus historic patterns, and that’s actually our marker.
Operator
The subsequent query is with Frank Mitsch of Fermium Analysis. Frank, please proceed with.
Frank Mitsch
Sure. Good morning. I want to present props to John on Slide 5. It tells a really useful story as to what you’re going through. Clearly, plenty of questions already on value. Michael, I used to be simply curious what absolutely the quantity you’re anticipating in 2Q can be versus that 10% in 1Q. After which famous within the feedback that your Tikkurila gross sales had been up low teenagers, excluding Russia. I’m curious how a lot of that was quantity?
Michael McGarry
Sure. So Frank, to begin with, we attempt to provide you with a information on that second quarter. So for those who take John’s little dotted line on that chart, you’re going to dot a line as much as round 12%. In order that’s most likely a fairly good quantity. We actually are internally pushing the staff for greater than that, however I believe that’s a sensible final result. I believe the Tikkurila quantity was in that low single-digits if I keep in mind appropriately. However the magnificence about what we’re seeing with the Tikkurila staff is that we’re instructing them tips on how to value. And that’s one thing that they traditionally haven’t completed plenty of. And so this has been an exquisite factor for us. And we – as we’ve got talked about earlier than, we predict Tikkurila can look similar to what Comex is. So, we get extra development within the native markets and we get higher worth for what we’re promoting and that results in an ever-improving return on our funding that we invested in shopping for Tikkurila.
Vince Morales
Since we introduced Tikkurila, one of many different companies that carried out rather well in Q1 was our Site visitors Options enterprise, the prior Ennis-Flint acquisition. We noticed round 25% natural development year-over-year in that enterprise and with a seasonally mild quarter. However once more, we nonetheless ended that – ended the quarter with a really sturdy backlog and now we’re going into a really sturdy quarter.
Tim Knavish
Sure. Hey Frank, it’s Tim. Simply so as to add another factor on that different massive acquisition for us. Vince talked about 25% high line development, all-time file quarter for that enterprise. And very like what Michael described with Tikkurila, the prior Ennis-Flint enterprise pricing self-discipline was very completely different than what we – how we executed PPG. And we additionally achieved double-digit value improve in that enterprise for Q1. So actually, actually happy with each of the massive acquisitions and the way they carry out for us.
Operator
Thanks, Frank. The subsequent query is from Arun Viswanathan of RBC. Arun, please proceed.
Arun Viswanathan
Hello. Thanks for taking my questions. I simply wished to, once more, drill into a number of the drivers of possibly Q3 and This fall, understanding that your visibility is comparatively dynamic. However when you concentrate on the uncooked materials inflation that you simply noticed in Q1 and Q2 or seeing now, are your present value will increase enough to hold you into Q3, or will you be elevating costs much more? And for those who do have to boost costs much more, may you additionally touch upon the supply of raws and if that has improved drastically from final 12 months? Thanks.
Vince Morales
Sure, Arun, that is Vince. Truthfully, our visibilities by way of all of the dynamics that play into inflation might be 60 days to 90 days. So, going out to Q3 or This fall is troublesome. And what we may inform you is we’re seeing higher provide in Europe, actually. Higher provide within the U.S. China is clearly, we’re going by a transitory interval because of the restrictions. However we do count on provide to normalize for the stability of the 12 months. And as we stated many occasions, we do really feel there’s sufficient structural provider capability to simply fulfill world coatings demand. So, we’ve got plenty of different noise happening proper now. However sooner or later, we are going to normalize throughout provide/demand primarily based on historic patterns, simply too arduous to foretell Q3, This fall proper now. We do have sufficient – we do have good pricing stepping into, as Michael stated, in Q2, which is sufficient to compensate for the sequential improve in uncooked supplies. If we see extra uncooked supplies within the again half of the 12 months, we are going to put in that real-time pricing engine once more.
Operator
Thanks, Arun. Subsequent query is with Jeff Zekauskas of JPMorgan. Jeff, please proceed.
Jeff Zekauskas
Thanks very a lot. It appears that evidently your packaging coatings enterprise has slowed down. After we have a look at beverage can demand globally, it appears fairly sturdy. What’s the dynamic that’s happening there? And in auto refinish, what had been the volumes within the quarter year-over-year?
Michael McGarry
Sure. To start with, let me contact on the packaging. Look, we’ve got picked up new share at, I’d say, 70% of the brand new beverage can vegetation. So, we’re in superb form from that going ahead. Second, while you have a look at the packaging numbers, you must keep in mind we had phenomenal comps final 12 months, and that can make it tougher. However our packaging total development this 12 months goes to be fairly good. So, I really feel superb about our place in our packaging coatings enterprise. I’d additionally inform you that after I take into consideration that enterprise, it’s not simply the amount, it’s additionally the worth that we’re realizing as properly.
John Bruno
Jeff, that is John. I’ll simply touch upon refinish. In case you have a look at the U.S. and Europe, on a year-over-year foundation, volumes had been up about mid-single digit, and that’s off of a tricky comp from final first quarter. It was an excellent quarter, particularly within the U.S. Asia was off slightly bit, primarily pushed by after we talked in regards to the Winter Olympics slowed exercise down and there was clearly some restrictions in March.
Operator
Thanks, Jeff. Your subsequent query is from Kevin McCarthy with Vertical Analysis Companions. Kevin, please proceed.
Kevin McCarthy
Good morning everybody. Two questions on manufacturing variance and CapEx. First, on the manufacturing aspect, again in January, I believe you talked a few $0.20 EPS drag within the fourth quarter. And I wish to know if that quantity declined within the first quarter, and if that’s the case, how a lot? And what your crystal ball would possibly say for the second quarter? After which on the CapEx aspect, if I learn the numbers proper, it regarded like your first quarter spend was $194 million versus $80 million final 12 months. And simply was questioning if there’s something uncommon in that by way of cadence or any change in your annual vary of $475 million to $525 million for CapEx this 12 months?
Michael McGarry
Sure. So, we are going to take the straightforward one first, CapEx. We had CapEx spending in December that we don’t pay for till January. So, the January quantity was most likely slightly bit inflated, however our total spend for the 12 months isn’t going to alter. And we’re nonetheless taking a look at that 3%, $500 million type of vary. So, we be ok with that. As , some – slightly little bit of that’s catch-up from the under-spending in ‘20 and slightly little bit of early 2021. So, from a producing standpoint, we had about $0.20 in This fall. We most likely had about half of that in Q1. And the issue is it’s not that we’re having challenges making issues, it’s we’re having challenges scheduling issues due to uncooked supplies predictability, what is available in. And if you’re lacking one merchandise, you possibly can’t make the paint. So, that’s an even bigger concern. And naturally, a few of it is usually power on the plant. So, as you possibly can think about, going into Q1, we had a sure pure fuel quantity for Europe. And we’re properly in extra of that after the battle broke out. So, I’d inform you, total, the manufacturing is getting higher. And I’d say for Q2, it’s best to anticipate one other 50% enchancment in that quantity.
Operator
Thanks, Kevin. Subsequent query PJ Juvekar of Citi. PJ, please proceed.
PJ Juvekar
Sure. Good morning. Michael, I do know you might have been again integrating into resin capability previously. Simply type of how did that allow you to throughout this loopy interval of power inflation and all that? After which second query for Vince. Vince, you talked about sequential margin enchancment. However given your kind of first quarter that you simply reported, the second quarter steering, first half goes to be down year-over-year. In case you proceed to enhance margins sequentially, do you suppose you possibly can develop earnings this 12 months? Thanks.
Michael McGarry
Okay. So PJ, I’ll take the emulsions query. We, as a part of our Site visitors Options or Ennis-Flint acquisition, it got here with a small resin plant. So, we’re making extra emulsions there. We predict we are able to improve the dimensions of that facility. So, the staff is working to try this as properly. So, not solely we’re going to use the asset, it was working 5 days every week, one shift, now it’s working 24 hours a day, seven days every week. And we’re going to enhance the dimensions of that. So, we’re in a position to get Ba and a few of these different uncooked supplies that go into making the emulsion. So, the supply is best there. And so we really feel snug that we’re going to proceed to enhance the utilization of that facility.
Vince Morales
Sure. And PJ, on the margins, I’m glad you introduced that concern again up, as a result of I do really feel it’s actually the measurement stick due to all of the noise final 12 months. Our first quarter final 12 months was very sturdy, benefited by – the primary quarter of 2021 benefited by some pandemic restoration. After which as we bought by the stability of the 12 months, our second half of ‘21 was very, very weak. We’re not going to present full 12 months steering on the decision right here at present. However once more, the trajectory of margins sequentially for every of those quarters, I believe is the true marker for our trade. We do count on, once more, from a number of the causes Michael talked about, abating provide shortages, enchancment in our manufacturing and catch-up on pricing, we do count on our margins to enhance sequentially versus historic patterns for the foreseeable future.
Operator
Thanks. Your subsequent query, Laurence Alexander with Jefferies. Laurence, please go forward.
Unidentified Analyst
Hello. Good morning. That is Kevin Asberg on for Laurence Alexander. I simply had a fast query in regards to the credit score market. So, I assume given the strikes and likewise the Fed’s tightening cycle, I assume I used to be questioning if there was any shift in how you concentrate on monetary leverage and I assume how a lot you propose or count on that you would flex your stability sheet going ahead?
Vince Morales
Sure. We’re – our monetary – our long-term monetary self-discipline hasn’t modified. We’re type of within the mid-2s by way of debt to EBITDA. We do have – we do count on to pay down some debt this 12 months. If we see something strategically, we need to execute on, we are going to act accordingly. However we’re not going to shift our methods. Once more, for those who have a look at our rate of interest and blended rate of interest, it’s the best-in-class of our area or near the best-in-class, so once more, no change in our technique or outlook within the close to time period.
Operator
Thanks. Subsequent query, Mike Harrison of Seaport Analysis Companions. Mike, please go forward.
Mike Harrison
Hello. Good morning. A few questions on the auto OEM enterprise. To start with, you might have been coping with some operational inefficiencies there. Has that improved both by way of buyer conduct or your capacity to handle what’s happening in that area? After which possibly an replace on electrical car utility wins with a few of your revolutionary choices. Have you ever seen some wins come by? And are you involved in any respect about battery shortages impacting EV development this 12 months?
Michael McGarry
Okay. Let’s begin with manufacturing. I’d say the– the auto guys have gotten higher at realizing what chips are coming in and when they’re coming in. So, they’re much higher. They’re having a lot much less scheduled or unscheduled downtime, it ought to be phrased. So, our manufacturing has gotten higher as a result of their predictability of working has gotten higher. And the one query no person requested, so I’m going to throw the reply on the market and be sure to know it’s our automotive staff has priced larger than firm common. So, I really feel actually good about that, the place we’re in that area. After which from an EV standpoint, we don’t see battery shortages this 12 months. It’s actually a long term development that we’re going to be paying shut consideration to. However proper now, after I take into consideration the place we’re profitable in that area, our protecting coatings that go into the battery has been an enormous win for us. We simply picked up two world-class prospects this quarter. Dielectric powders, is one other space that we’re profitable in. And so I really feel very snug about that. So, one of many high 5 guys, we’re additionally working a long-term cathode binder research with, that’s extra like a 3-year to 5-year program, however the truth that they got here to us to try this is known as a good signal about how they see us taking part in on this area long run. So, I’m very snug with the tempo that EVs are rising and our capacity to service that market.
Vince Morales
And Mike, I simply need to – I’m glad you introduced the query up once more as a result of I do need to discuss slightly bit extra broadly about auto construct. Michael talked about, targets from third-party consultants this 12 months is round 80 million builds. Once more, we predict the market, on a run fee foundation, is usually over 90. So, there’s at the least, let’s name it, 10% to 12%, 15% catch-up that can happen within the subsequent, you decide the variety of quarters or months, 12 months to 18 months. On high of that, we predict there’s a fleet rebuild that has to happen for issues like automobile rental fleets. We peg that as one other 3% to 4% of the market. On high of that, there’s a list replenishment cycle for – within the U.S., for instance, seller tons, so, a really lengthy runway. They’re actually getting higher chip availability and extra consistency. And there’s extra chips to return within the again half of the 12 months and early 2023. So, very instrumental in our restoration, and we really feel very sturdy in regards to the underlying demand that helps that.
Operator
Thanks Mike. Subsequent query is from Jaideep Pandya of On Discipline Analysis. Jaideep, please go forward.
Jaideep Pandya
Thanks. The primary query actually is round your protecting and marine enterprise. Respect you guys are greater in China as of late, however how do you see your backlogs evolving now that oil costs are excessive, fuel costs are excessive and likewise a number of the marine finish markets are doing extraordinarily properly by way of money era? So, do you suppose that subsequent 2 years we must always see a fabric enchancment on this space? After which the second query actually is round auto – the auto enterprise of yours. Respect, Vince, what you simply stated. However like if we go by the idea that there’s cannibalization the place EVs are consuming into the ICEs, simply need to perceive your fastened value construction. So, within the sense, within the subsequent 5 years, if we’ve got 90 million automobiles, however 25 million or 20 million of them are EVs, are you able to really scale back your fastened prices in your conventional ICE-based auto OEMs? And then again, clearly, win in EVs? After which are you taking a look at any bolt-on acquisitions, for example in EV-related coatings for batteries, or do you might have already publicity there? Thanks lots.
Michael McGarry
Okay. Jaideep, we are going to begin with the brand new builds. Our marine enterprise is up considerably and it’s going to proceed to develop. New builds are up 20% year-over-year, and it’s up strongest in China, which is the place we’re strongest. So, this can be a good marketplace for us. The oil and fuel property which are going to be constructed due to the Russia battle on Ukraine are additionally going to extend. So, that’s actually good for us. LNG tankers are actually good for us. That is an space the place pool fires result in a product that we promote which are best-in-class. So, I’ve excessive hopes for our groups, our Protecting/Marine enterprise over time that’s persevering with to do properly. While you discuss in regards to the auto enterprise, fastened prices, we really paint EV automobiles similar to you paint an inner combustion automobiles. So, we’re going to nonetheless have all that enterprise and fortuitously you promote extra paint for the battery field. So, really, your fastened – your value construction improves as the amount goes by. So, the transition from inner combustion engines to batteries is definitely an excellent development for us. And we’re main within the area on this space. So, we’re doing – I’d say, we’re doing higher than our typical market share on inner combustion engines. Now, will we have a look at acquisitions in that area, we’re all the time on the lookout for issues that add shareholder worth. So, I’d inform you that we’re all the time . It’s a extremely aggressive area proper now. There may be numerous folks taking part in in it, whether or not it’s the protecting coatings, whether or not it’s movies, whether or not it’s powders, whether or not it’s thermal hole fillers, there’s quite a lot of completely different purposes on the way you win in that area, however we really feel superb about this.
Operator
Thanks, Jaideep. There aren’t any additional questions ready at the moment. So, I wish to hand the decision again over to John Bruno.
John Bruno
Thanks, Sam. Earlier than we wrap up the decision at present, I wished to let everybody know that Mary Anne Bendzsuk will probably be retiring within the second quarter and this will probably be her final quarterly earnings name. I believe lots of people on the decision had handled Mary Anne and she or he has been a valued staff member right here at PPG for a few years and offered glorious help to the funding neighborhood, supporting Investor Relations for greater than 20 years. We need to thank Mary Anne and want her and her household all the perfect in retirement. That concludes at present’s name. If anyone has some other questions, please give us a name. Thanks very a lot.
Operator
That concludes the PPG Q1 2022 earnings name. Thanks all on your participation. You could now disconnect your strains.
