Good morning. My name is Rocco, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2021 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. And as a reminder, ladies and gentlemen, today's conference call is being recorded. I'd now like to turn the conference over to John Bruno. Please go ahead, sir.

Thank you, Rocco, and good morning, everyone. Once again, this is John Bruno. We appreciate your continued interest in PPG, and welcome you to our fourth quarter and full year 2021 financial results conference call. Joining me on the call from PPG are Michael McGarry, Chairman and Chief Executive Officer; and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. markets closed on Thursday, January 20, 2022. We have posted detailed commentary and accompanying presentation slides on the Investor Center of our website, ppg.com. The slides are also available on the webcast site for this call, and provide additional support to the brief opening comments that Michael will make shortly. Following management's perspective on the company's results for the quarter, we will move to a Q&A session. Both the prepared commentary and discussion during 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 are available on our website reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC. Now let me introduce PPG Chairman and CEO, Michael McGarry.

Thank you, John, and good morning, everyone. I would like to welcome everyone to our fourth quarter 2021 earnings call. I hope you and your loved ones are remaining safe and healthy. I will provide some comments to supplement the detailed financial results we released last evening. For the fourth quarter, we achieved record net sales of about $4.2 billion and our adjusted earnings per diluted share from continuing operations were $1.26. To quickly summarize the quarter, we had favorable sales versus our forecast but incurred significant manufacturing challenges due to COVID-related staffing shortages, intermittent customer order patterns, and raw material supply challenges. Our adjusted earnings were aided by a lower-than-expected tax rate in the fourth quarter as we recognized more favorable discrete items. Excluding the favorable impact from the tax rate, our adjusted EPS was about 10% below the financial guidance we provided in October. Our sales performance in the fourth quarter was solid as we achieved higher sales than our guidance, primarily due to better-than-expected automotive OEM global production, higher selling price realization, and strong above-market sales volume in several of our end-use markets. Overall, demand remains robust. Our PPG-Comex business delivered yet another excellent quarter and finished with 10% organic sales growth for the full year of 2021. This business had record sales and earnings growth for 2021, and continues to expand its concessionary network. In January, we will have 5,000 concessionaire locations in our network, and we recently added our Traffic Solutions products to its portfolio. The protective and marine business continued its trend of strong top-line results, this time led by improvements in marine coatings, where industry builds are expected to grow for the next several years. We also continue to grow our share in automotive refinish where our full suite of Advantage products and services differentiate PPG from our competition. And in automotive OEM, we were awarded new 2022 business based upon our expanded mobility product offering. Lastly, we realized higher selling prices globally. The recently acquired Tikkurila business delivered record sales and earnings for any fourth quarter despite the difficult operating environment. As I mentioned, overall sales would have been better, but we experienced continuing supply chain disruptions and a significant increase in COVID cases that hampered our ability to fully and consistently operate, and prevented us from fully meeting our strong customer order books. Recently, some of our manufacturing facilities have had up to 40% of their workforce out. In several businesses, we continue to face certain raw material shortages with the biggest impacts in U.S. architectural coatings and traffic solutions. Overall, our sales backlog grew, and in total, was about $150 million exiting the quarter, most notably in our aerospace, automotive refinish, and general industrial businesses. Our segment earnings did not meet our expectations. While we benefited from higher sales and increased selling prices, it was not sufficient to offset significant inflation, supply disruptions, and operational inefficiencies caused by the rapid increase in COVID cases within our employee base, and those that our customers and suppliers. Raw material cost inflation was up approximately 30% compared to the prior year, and transportation costs spiked due to shortages of available trucks and drivers. In addition, operating costs were progressively higher during the quarter due to manufacturing interruptions at both our facilities and our customers' operations stemming from COVID. These increased operating costs impacted the quarter by $0.20 per share, and COVID-related absenteeism has continued in January. Once we see some normalization, we are confident that we will quickly be able to return our legacy of strong manufacturing performance. We've been taking actions to further diversify our supplier base and increase our internal resin manufacturing capability. PPG has in-house large-scale resin manufacturing in each major region, and we are expanding our capability in 2022 to mitigate future risks. As one example, PPG-Comex sources a high percentage of its resins internally, which has resulted in minimal disruptions. In addition to the historically high level of commodity raw material prices, we're also experiencing rising costs in other areas such as labor and utilities. We expect to continue to proactively work with our customers to implement additional selling price increases in the first quarter. In aggregate, our selling price realization in the fourth quarter was about 8%, with higher price realization in our industrial reporting segment. Our price capture remains broad, with good traction in all businesses and all regions, and the pace of price capture is much faster than the pace of prior inflationary cycles. Reflecting back to 2021, we achieved all-time record sales of $16.8 billion, led by strategic acquisitions and strong organic growth of 10% despite the various ongoing supply chain challenges we incurred. We delivered record EPS growth of more than 10% even with raw material cost inflation of about 20% for the full year, the highest level of coatings industry inflation in recent memory. We once again lowered our SG&A as a percentage of sales, decreasing by about 200 basis points, aided by delivering $135 million in restructuring savings in 2021. We also advanced our digital capabilities in many businesses, most notably the Architectural Coatings business or sales transactions on a digital platform increased by 20% compared to 2020 as we see our customers' digital patterns become more ingrained. In 2021, we had strong accretive cash deployment, including the funding of our acquisitions, share repurchases made in the fourth quarter, and an increase in our quarterly dividend for the 50th consecutive year. We're among a small number of companies that have achieved this milestone, along with even fewer companies paying a dividend for more than 120 consecutive years. Our working capital as a percent of sales remains at historically low levels and comparable to last year, even though we purchased more raw material than typical in the fourth quarter. Finally, we have lowered our net debt by about $350 million since funding Tikkurila in June and exited 2021 with a strong balance sheet and optionality for future accretive cash deployment. Throughout 2021, we took actions to bolster our ESG program. As an example, in the fourth quarter, we further strengthened our overall ESG corporate governance structure. We define accountability and oversight for all major elements of our ESG efforts under respective Board committees. We have also redefined and renamed our Technology and Environmental Committee to the Sustainability and Innovation Committee, with a key focus on tracking our sustainability progress and defining climate-related risks and opportunities. A slide reflecting the changes is included in our presentation materials. Looking ahead, demand continues to be robust in most of our end-use markets. Tightened supply and COVID-related disruptions evidenced in the fourth quarter are expected to continue into the first quarter of 2022, impacting our ability to manufacture and deliver product. We expect economic activity to be soft in China during the first quarter as more severe operating restrictions have recently been imposed due to COVID and during the Winter Olympics. We anticipate more favorable economic conditions in the second quarter. We plan to implement further selling price increases in all our businesses as raw materials and other cost inflation remain at elevated levels and are increasing further in certain areas. We will continue to aggressively manage all aspects of our cost structure and are managing to minimize the cost impacts of the current supply challenge. The first quarter EPS guidance that we provided has a wider range than normal. As is typical, the month of March will be the largest component of our quarterly sales. Our current visibility to the second half of the quarter is limited due to uncertainties around the supply chain disruptions and the various impacts of Omicron globally. While the current environment remains difficult to predict, I expect that as 2022 progresses, we will start to experience more economic reopenings and an easing of supply chain problems, general inventory rebuilding across many end-use markets and a healthy consumer willing to spend. I remain very optimistic about the future earnings capability of our company and see many catalysts to return to prior peak operating margins with opportunities to exceed them. This includes: First, continued recovery in the automotive refinish, OEM and aerospace coatings businesses, which collectively account for about 40% of our pre-pandemic sales and where we have broad global businesses supported by Advantage technologies. The volume for these businesses remains about 15% below pre-pandemic levels and we are already experiencing improving order flow that is being crimped by supply availability. Second, normalization of commodity raw material costs, which should moderate over time as supply dislocations improve. Third, higher operating leverage on sales volumes supported by our lower cost structure. Fourth, year-over-year earnings growth in 2022 and 2023 due to further synergy capture from our recent acquisitions, including a 15% increase to our original synergy target. Finally, above-market organic growth driven by our Advantage and leading brands, technology, and services. An example of the key organic growth opportunity is the recent announcement on our expanded relationship with The Home Depot and HD Supply with the launch of Pro Paint Assortment at all U.S. locations. This initiative strongly supports our asset-light strategy by adding more than 2,000 distribution locations. Together with The Home Depot, we are positioned to outgrow the Pro market in the U.S. Considering all of these catalysts, I believe we have a path to at least $9 of EPS in 2023. In closing, I want to express my thanks and appreciation to our more than 50,000 employees around the world for their dedication to serving our customers and supporting the many communities where we operate. Every day, their hard work and commitment to delivering on our company's purpose to protect and beautify the world are reasons why we are well-positioned today and in the future. Thank you for your continued confidence in PPG. This concludes our prepared remarks. And now Rocco, would you please open the line for questions?

And today's first question comes from David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Michael, just on the Q1 guidance, can you parse out a little bit more of the details around the U.S. manufacturing disruptions and what's happening in China and how it's impacting the Q1 earnings guidance?

Right now, we're not seeing much change from what we experienced in the fourth quarter. We had about $0.20 of negative manufacturing impact. In October and November, we experienced four times the number of employees affected by Omicron in December and January, including those sick and those quarantined due to close exposure. Our main concern is if Omicron reaches China. With China's zero COVID policy and our largest facility in Tianjin, a recent small outbreak led to the testing of 14 million people in just two days. If Omicron spreads in China and they maintain their strict policies, it could be very disruptive. We're monitoring this situation closely. I believe Omicron has peaked in the U.S., but it hasn't started to decline yet.

Yes, David, and if you think about our Q1 guidance in addition to the production concerns or limitations we've had, we do know that China will be limited somewhat due to the Olympics. We are also experiencing significant logistics issues in the U.S. and in other parts of the world. We expect those logistics issues to continue into Q1, especially in March when the overall economy starts to improve seasonally. March is our biggest month by far in the first quarter as is traditional. We also have more muted visibility on March than we typically would, given the issues we've seen over the past six to eight weeks.

Thank you. And our next question today comes from Bob Koort with Goldman Sachs. Please go ahead.

Thank you very much. Good morning. Michael, the guidance you provided for the first quarter seems to suggest maybe the raw material inflation aspect is starting to hit a crest, obviously, availability and production issues compounding problems. Do you see any stability in those raw materials? Have you seen any come down? Are the ones that caused you such trouble in the past the same ones as availability improved? Can you give us any inspiration outside of Omicron that maybe the inflation bubble is hitting a ceiling?

Yes, actually, Bob, I think our guidance for the first quarter looks at two factors. One, raw materials have leveled off. We're watching the recent pop in oil up to mid- to high-80s, so that could have an impact on solvents. But right now, we've modeled 20% to 25% raw material inflation. For the first quarter, we were also modeling that our prices are going to be at the same level as raw material inflation. So I think that's going to be a good number for us. We are seeing logistics. I think I misspoke; I think it's 25% to 30% for Q1. But anyway, price will equal raw material inflation in Q1. Obviously, we're watching logistics costs, but we feel pretty good. We're projecting price to be up between 9% and 10%.

Thank you. And our next question today comes from Chris Parkinson with Mizuho. Please go ahead.

Thank you. Good morning. Michael, it seems the goalposts keep moving on both the costs and the procurement front. But it really appears that it's really the raw material shortages, freight, as you highlighted, electricity rates, and varying capacities depending on geography and, to a slightly lesser extent, labor. I know you've already been talking about achieving price, but can you quickly comment on those other cost variables in Q1? You just hit on a little bit. How we should be thinking about those heading through the balance of the first half of 2022? Also, are there any other strategic actions that you and your team can take to potentially alleviate these challenges in the future? Thank you very much.

Freight is the single biggest challenge we have right now, with truck drivers not showing up. You don't get the contract price that you have negotiated; then you end up having to buy spot loads. That's one. We are seeing labor inflation, and I would tell you that we anticipate warehousing inflation as well, although we always try to secure those as long-term contracts. But any roll-off this year, we'll be looking for an increase in that space. Overall, I would tell you, though, those have all been anticipated. Nothing that we haven't anticipated regarding that inflation. Our team is well-versed that we're not looking to get just raw material inflation, but raw material and total inflation from our customers, and we've been very explicit in those discussions with our customers as well.

Yes, Chris, just to stratify the total cost pools here. Again, raw materials remain significant; they're 60% to 70% of our cost of goods sold. If you look at labor, it's a mid-single-digit percent of our sales, a little higher, obviously, in architectural given the stores and the feet on the street, a little lower in some of our OEM businesses, and logistics costs are probably mid- to high-single digits as a percent of sales. These labor and logistics costs, while they're building up, are much smaller cost components for the company.

Thank you. And our next question today comes from Ghansham Panjabi with Baird. Please go ahead.

Thank you. Good morning, everybody. Just high level, given all the disruptions on the customer side and the incremental impact from Omicron, will the first half of 2022, the way you see it at this point, be more pressured than the back half of last year? Or do you think there'll be easing on the bottlenecks as the first half unfolds? I guess I'm asking because you have massive labor issues at the homebuilder level, rolling shutdowns in auto OEM, and various degrees of logistical constraints? How should we think about that?

Ghansham, I think the single biggest thing about Omicron is. Let me just give you an example of how difficult it is to be a plant manager. The toughest job in PPG right now is a plant manager. They wake up in the morning, check their phone to see how many people called off sick, then go to work. They go through the dock area to see how many trucks didn't get picked up, and then go to the receiving area to find out what didn't come in that was supposed to. Then they move it into the plant, and the supply chain people are telling me that they're going to have to make smaller batches because of a lack of raw materials. The sales team is telling them, oh, my God, if we don't get paint out the door, here's how many customers we're going to impact. By the time they get to their desk, before they even have a morning meeting, they have a multitude of issues to resolve. The contrast to that is when I think about your first quarter to second quarter question. What do I see improving? I see automotive OEM definitely improving. The chip shortage is going to continue to get marginally better. They're getting better at handling it. So that is going to get better. Refinish, this winter that we're having right now is a positive. So refinish is going to get better from the first quarter to the second quarter. At some point, China is going to approve the 737 MAX, and when they fully approve that, that is going to be a positive for our aerospace business because Boeing we anticipate will increase build rates. Airlines are already talking about how people are booking post-Omicron. We expect the MRO of our aerospace business to continue to improve from the first quarter to the second quarter. Our packaging business continues to see a strong push for sustainability. There are several new packaging plants that will be opening in 2022. So transitioning from plastic to metal packaging, away from single-use plastic, is ongoing and that is going to be a positive. Those are the positives that I see coming up now. Clearly, the marine new builds in China are going to be significant, but we don't anticipate that to be a first quarter to second quarter event. I think that's more of a back half of the year.

Next question today comes from John Roberts with UBS.

Michael, I think Comex, when you bought it, had 80% of its own resin in plastic pail production. You're obviously a lot lower in the other regions. What's the right level of pack integration for PPG?

That's not a precise answer because you have to balance the capital that you put in to build additional resin capacity into the cost of buying it. For us, we're actually getting more capacity in Mexico, and we're adding a little bit more capacity in the U.S. We don't see the need to do that in Europe because the supply availability is pretty good there. From Asia, it is certainly not a priority for us. It is a balance. I would tell you that we'll be higher and internally sourcing resins in '22 and '23 than we are today.

Thank you. And our next question today comes from Michael Sison with Wells Fargo.

Michael, just curious if you could help us sort of bridge the gap to the $9. I suspect a good portion of that will be closing that pricing raw material gap. But any help in terms of how much of the walk gets us there on that, and then volume, cost savings and such?

Yes, Mike, this is Vince. I'll start, and Michael can add some color. The biggest issue that we've talked about for the last couple of quarters is just a return to normalcy in some of our biggest businesses: auto OEM, refinish, aerospace. Michael gave you some color a few minutes ago around how we see that from the first quarter to the second quarter, but those businesses are down 10% to 15% or more in the case of aerospace versus 2019 levels. We see strong demand patterns in those businesses, and to get to the $9, we need those businesses to approach 2019. One of the other benefits we expect is we had negative price raw exposure all of 2021. As Michael said, we're cresting on raws, prices are getting close to or exceeding them, depending on the business. We expect some year-over-year recovery there. Over the past couple of years, Mike, we've taken about $250 million of structural cost out via restructuring. We've taken out another $100 million to $125 million of overhead costs. As volume returns, we expect a higher incremental margin than we've had historically. Those are three of the bigger pillars that will get us to the $9, and again, a return to normalcy is the biggest one of those.

And Mike, I would just add that when you think about the volume, you can use external sources like or in buses and then think about how a bigger return in our impacted businesses will be a positive for us. Finally, productivity is one item that we're very good at, and this obviously wasn't there in the 2021 time period.

And Michael, I'll add one more. Our synergies that we've taken up in this quarter. We're now targeting $150 million in total. So that will also provide some assistance in getting to that $9.

Thank you. And our next question today comes from John McNulty with BMO.

Michael, maybe you can help us to think about the big Home Depot win that you had. Can you help us to maybe scale opportunity there? Also, maybe give us a little color in terms of how big the initial fill is and how much incremental help you might get from that.

So John, the way I would think about it is, first of all, we had a very extensive test. We started out in Tampa, Denver, and Albany. We had about 80-plus stores in that market. That went exceptionally well. We then expanded that to Indie, New Orleans, and Detroit. We added about another 80 stores, so that's let’s call it, 160 stores. They were very pleased. We shared internal data between the companies about who comes into Home Depot, who buys a number of paint sundry items but do not buy paint. We were able to pinpoint who comes into the store and buys what type of paint. If they optimize their purchase, they'd be able to do a better job in productivity. As a result of that, we are able to target not just winning in Home Depot, but winning externally. That is the #1 thing that Home Depot and PPG want to do: win externally. This is going to be a significant win for us. We will be outpacing the Pro growth for many years to come with the support of Home Depot. We've effectively taken our 800 stores, they’re 2,000-plus stores, and formed a network, which will allow them to significantly grow their share in the Pro Paint market.

If I could add, this is Vince. A couple of things for us strategically. This is consistent with our heavy distribution model in an asset-light format using existing brick-and-mortar. This is also consistent with our digital strategy, where we're able to use digital platforms for both us and our big customers. One of the more exciting things, as Michael alluded to, is we compared CRMs or customer data. We know that painters of all sizes build into Home Depot. As Michael mentioned, they're not always buying paint today, but painters of all sizes are going into Home Depot for something. This will alleviate their need to visit two or three different retail outlets to get their full needs.

Which will drive productivity for the Pro Painter. That's what this is all about. So they can spend more time painting and less time driving to stores.

Thank you. And our next question today comes from Stephen Byrne at Bank of America Securities.

I'd like to continue this discussion on this Home Depot relationship. Some of these really large paint contractors benefit from free delivery to the job site and 5-gallon containers, features that you may provide from your stores but Home Depot doesn't. Is that going to change? Will that service be provided from your stores or will Home Depot provide that? Does it depend on whose digital app is involved in this?

Yes. Actually, we will have 5s in the store. If you go into a Home Depot right now, you'll already see PPG 5-gallon containers in the store. We will be coordinating with Home Depot on delivery as appropriate. We also have service level agreements with our stores to provide a fast turnaround to our people that are ordering digitally. Home Depot already has this on their digital apps as well. This will continue to be a new dynamic in how paint is delivered to our major Pro Painters.

Thank you. And our next question today comes from Laurence Favre with BNP Exane.

Michael, in the slides, you highlighted two businesses where Q1 is expected to be better than Q4: OEM and architectural EMEA. You've talked quite a bit about auto OEM. Could you say a little bit more about the architectural EMEA line?

Sure, Laurent. What you are starting to see in Europe is the continued growth in Pro Painter. DIY is kind of normalized, but Pro is picking up. Even though there have been a small number of lockdowns in Europe, that has not really impacted the order pattern so far in the European market. Plus we have the growth that we are expecting to see in Tikkurila. We have a pretty good line of sight to what they call their preselling season, and that has worked out pretty well. We're expecting to have a pretty good first quarter, second quarter in the European architectural market.

Our next question today comes from Frank Mitsch with Fermium Research.

Good morning, gentlemen, and let me give a quick shout-out to Mr. Knavish. Congrats, if you're listening. Michael, you outlined why the last couple of quarters we've seen margin compression. In the release, you mentioned that you see a path to returning to prior peak operating margins and also exceeding them. I was wondering if you could offer a glide path or a timeline that you see the margin improvement over the next couple of years?

Every quarter from this point out, we should start to see improvement in the margins. We're anticipating raw materials flattening out right now. Our price increases will continue. We've had 19 quarters in a row of positive price. We will stack 2021 out there as well. That will be a start. We'll be getting the manufacturing behind us, and those issues will be behind us as well. That will be a positive. We have a number of productivity programs and capital investments that will drive more productivity, so we will need less labor to get paint out the door. We've talked about being over $9. I don't know why we wouldn't be there in 2023.

Again, the challenges we've faced over the past three or four quarters. We’ve been playing significant catch-up on pricing, and we think we're normalizing there to closer to parity this quarter. In successive quarters, we hope to get some recapture so that headwind should turn into at least a neutral if not catch-up tailwind. Manufacturing is expected to normalize at some point, hopefully in late Q1, early Q2. But the real driver for us is that volume. Again, we're down significantly, around 5% to 6% versus 2019, with several of our big businesses, as I alluded to earlier. These will stack sequentially in that manner.

And our next question today comes from Kevin McCarthy at Vertical Research Partners.

Michael, just a follow-up on pricing; you're making some good progress there. I think you mentioned 9% to 10% as an outlook for the first quarter on pricing. So two parts: Where are you most happy with the realizations and where do you think you might have more work to do? And as we think about that 9% to 10% level for the first quarter, how do you think that might trend as 2022 progresses? Would you expect that level to be sustained, move higher, or regress in a scenario where the raw pressure might cool off?

The 9% to 10% in Q1, if you look at it on a two-year stack, it's closer to 11% to 12%. When we talk about pricing from here going forward, we're going to have to look at it on a two-year stack because we did get pricing traction early in 2021. We’ll be lapping that as we go throughout the year. Again, that 11% to 12% is what we're expecting on a two-year stack beginning in Q1. I'll let Michael talk about the different businesses.

Yes. The businesses are probably pretty much what you would expect. We've been working proactively in our refinish business and consistently getting price in that area. We've done a really good job in PMC except in China. China has been a challenge for us with people chasing volume. That would be the one area I'd say we need to do a better job in. When you think about architectural, we've consistently done a good job around the world. I have no concerns in that regard. I would tell you that we've gotten traction in automotive OEM. Automotive OEM was very close to the company average in the fourth quarter, and they expect to be at the company average in the second quarter. That's been an improvement. I’d say on the packaging side, we need to do a little bit better. More inflation is present in packaging because it has a higher epoxy component. I've been pleased with the industrial side. The way of thinking about this around the world is that China has always been the most challenging on the automotive OEM side. We have a number of competitors that are still chasing volume instead of pushing price. We're conscious of what's going on over there.

Yes, our mission is to ensure we're getting good value for our products. If we don't see value, we're going to shed some of the customer businesses. We know some competitors, especially in China, are not doing that. Our marker is to remain a good, solid, profitable automotive business.

Thank you. Our next question today comes from Vincent Andrews with Morgan Stanley.

A couple of things on your acquisitions. One, the businesses you've already brought into the fold, how are you doing in terms of getting the price-cost relationship to the company level? Just on capital allocation, I think the last time or last quarter, it seems like M&A was less likely this year versus last year, just given where the bid-ask spread was. Any update there as well, please?

Let's do these by the acquisitions. Starting with the little one, VersaFlex, we are well ahead; been exceptionally pleased with that team. The two in Germany, Cetelon and Wörwag, unfortunately, the prior management before our time had made commitments for 2021. The good news is 2021 is buying this. The price increases in 2022 will be significant and are already in place. Overall, I've been pleased with where we are starting, but I am not pleased that we had to wait a number of months to make that happen. Traffic solutions, that's the old Ennis-Flint. They have done a really good job on that and have changed the way the industry thinks about getting value for paint. I think that has really helped a lot. Finally, Tikkurila, we're doing very well there as well. I'm happy with the team. We had good pricing realization in the fourth quarter, and we're starting out Q1 in good shape as well. Net-net, slow on a couple of businesses due to prior management commitments, but overall, for 2022, I feel very good about it.

On cash deployment, we're still reviewing what I would call an active acquisition pipeline. That remains an available priority for us if it's at the proper price. We'll continue to vet those and use the remainder as a flywheel. We'll certainly look to mop up dilution this year as we've tried to do in prior years, at least on a cumulative basis. We have some debt to service, so we'll do that as well. Right now, we have a strong balance sheet, and we'll use that for shareholder accretion as we go throughout the year.

Thank you. Our next question today comes from Arun Viswanathan with RBC Capital Markets.

Just curious, I guess, on refinish, have you seen a noticeable drop-off in the last couple of months because of Omicron? Similarly for aerospace, has that happened as well? If so, could you offer any thoughts on when that might reverse?

No. Actually, Arun, on both those businesses, we have substantial backlogs. We finished the year in refinish, especially in Europe and the U.S., with substantial backlogs. Inventories are low. Winter has been helpful to us, especially here in the U.S., so we're anticipating a good start to our refinish business in 2022. We finished with a very substantial backlog in aerospace. The challenge in aerospace has been the airlines ordering MROs, especially transparencies and coatings. Coatings were able to mostly keep up, but on transparencies, we're having a challenge with hiring enough people. It takes much longer to train people to build transparencies. Substantial backlog is growing, and that will likely get bigger in the first half of the year, and we anticipate both businesses performing better in 2022 than they did in 2021.

This is Vince again. If you think about one of the things Michael alluded to in the opening comments, the inventory channels in almost every one of our end markets are very depleted. The most visible economically is in the automotive market, where dealer lots are voiceless. Refinish is extremely light in terms of inventory, not only to complete the current mix of cars that are in need of repair but also to replenish with a very low distribution inventory level. Architectural businesses, regardless of location, are very light on inventory. In general industrial markets, some of those also have very low safety stock, if any at all. We're very comfortable that if we could produce a product, we could sell a product. We believe some of the supply chain issues will resolve in the back half of Q1, early Q2, allowing us to begin shipping. We certainly need to get labor availability back. However, inventory replenishment is a big story for 2022.

Also, with used car prices so high, people are repainting cars that would previously be totaled. We're seeing many used cars painted. Historically, where that might have been termed a value paint, many are now demanding premium paint. The refinish business is in really good shape.

Thank you. And our next question comes from Duffy Fischer with Barclays.

I have a question regarding the lost volumes. Your volumes were down 4%. Many would argue that if there hadn't been issues in the industry, that figure would have been positive. Perhaps there was a 5%, 6%, or 7% loss in volume. My question is about the composition of that volume. Were you able to direct those resources toward higher-margin products, or does that lost volume involve a lower margin? Please clarify the margin that this volume would have generated compared to the corporate average and how the mix differs from your current sales.

Duffy, I would take some exception to that minus 4 going to a plus. I don't think that's likely; I think, a minus 4 would have probably been minus 1 or at best because there are a number of other issues going on in the market right now. To the extent we can get raw materials, we are shipping product. Most of our businesses have had challenges getting product out the door, but we have significant demand out there. I don't think it would have been a different mix, to be honest. Clearly, if we could have gotten more transparencies and more refinish out the door, that would have been a better mix for us. But I'm not sure that we have really substantially diluted ourselves or accreted ourselves by what we shipped in the fourth quarter.

The minus 4 is versus a very strong comparison from the prior year. In the fourth quarter of 2020, we saw the partial recovery from COVID in our automotive and industrial businesses. We had strong performance in Q4 of 2020 that we were comping against in 2021. If you compare to 2019, we're still down more than 4%. Those are in the heavy technology last businesses, refinish OEM, and aerospace that typically would favor your reference point.

And the next question today comes from Prashant Juvekar with Citi.

Emerging markets seem to have slowed down. It seems like Chinese industrial activity is down, but that could be due to dual control and the Olympics. Latin America seems to be down as well, maybe because of COVID. Can you parse out and tell us what's happening underlying in emerging markets? Secondly, regarding OEM, I was not sure why your OEM sales were down or underperformed the industry. I think you have good EV exposure, so that should have helped you.

Starting with OEM, I would tell you that we were slightly below because when you look at some of our business in China, we decided that we wanted price, and we were willing to walk away. That business will come back to us; I'm not worried at all about that. We are gaining share in the mobility section. We started up a brand-new battery fire protection plant in China for batteries, and that is going exceptionally well. We will be doing similar expansions in Europe to support European growth as well. I feel very confident about that, but we are committed to getting price up in OEM. If that means that some smaller customers move their business elsewhere, that's fine. Regarding emerging markets, let's talk about this in several different factors: China is a little bit soft but still growing; we expect global production in China to be up 4% to 5% in 2022. India is doing exceptionally well; we're expecting them to be up 8% or 9% this year. Eastern European business has been up high single-digits over the past 6 months. With our Tikkurila acquisition, we are now the largest coatings company in Russia; our architectural business is substantially bigger than the #2 player. I think this will be an opportunity for us to grow share in Russia through Advantage products, so that's a long-term win for us.

Mexico, for us, has big businesses, particularly in architectural, which has performed exceptionally well once again. Automotive and industrial businesses experienced some tempering from the lower automotive builds on a year-over-year basis. We do expect those to return as the chip shortages alleviate as we progress through the year.

The next question today comes from Mike Harrison with Seaport Research Partners.

I had a question on the auto OEM business. You noted that production was a little bit better than you were anticipating coming into the quarter, but that it was intermittent. Can you help to explain why this intermittent production led to operational challenges and higher operating costs for PPG?

Sure, Mike. The issue is that suppliers don't have great visibility on when they do or don't get chips. They provide us an order schedule. In the past, a 90-day advance order schedule would give us, let's call it, 85% to 90% confidence. Nowadays, even a week out, we only have 80% confidence. We're having to make smaller batches, and we are getting what we might have to make shipped in from a chips standpoint, leading to inefficiencies in our operations. Looking forward, the industry produced about 75 million cars this year. We're looking at that number being closer to 82 million to 84 million cars next year. This is still down from its peak, and that is a substantial opportunity for us long-term because at the peak, it was 95 million cars. There's still more runway in the automotive OEM space.

At the peak, the 95 million cars Michael mentioned doesn't include the fact that many cars need to replenish dealer lots. We believe that's up to 2 million to 3 million vehicles in 2022 alone, if they can make them. Rental car fleets in the U.S. are also fairly depleted and need replenishing. There are many company-owned cars in Europe that have not been replenished over the past couple of years. Beyond normal demand, there are many other elements in the automotive market that will allow us to maintain an elevated production capability for multiple years.

And our next question today is from Edlain Rodriguez with Jefferies.

Michael, again, apologies if you've already addressed that. In terms of capital allocation, you have more than $1 billion left on the current share buyback program. What should we be taking in terms of pace and timing? Is this a 2022 event, or will it take longer?

We’re going to look at acquisitions, primarily still active pipeline, likely smaller transactions in the past 12 to 15 months. We’ll mop up dilution for sure this year at a minimum. We’ll do some debt servicing, and we will continue to assess where to deploy any excess cash.

Thank you. Ladies and gentlemen, this concludes your question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Great, thank you, Rocco. We'd like to thank everyone for your time and interest in PPG. This concludes our fourth quarter earnings call. Have a good day.

Thank you, sir. Today's conference has now concluded. You may all disconnect your lines, and have a wonderful day.