Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter PPG Earnings 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. I would now like to turn the conference over to Jonathan Edwards, Director of Investor Relations. Please go ahead, sir.

Thank you, Angela, and good morning, everyone. This is Jonathan Edwards. We appreciate your continued interest in PPG and welcome you to our first quarter 2024 financial results conference call. Joining me on the call from PPG are Tim Knavish, 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. equity markets closed on Thursday, April 18th, 2024. 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 opening comments Tim 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. The 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. And now, let me introduce PPG Chairman and CEO, Tim Knavish.

Thank you, Jonathan, and good morning, everyone. Welcome to our first quarter 2024 earnings call. I'd like to start by providing a few highlights on our first quarter 2024 financial performance, and then I'll move to our outlook. The PPG team delivered sales of $4.3 billion, a solid sales performance despite a very challenging macroenvironment, and we delivered our sixth consecutive quarter of year-over-year segment margin increases. This culminated in first quarter adjusted earnings per diluted share of $1.86, which is $0.02 above the midpoint of the range that we provided in January. This is also our second-best Q1 adjusted EPS in the company's history, falling just $0.02 short of the record achieved during the early COVID surge in house paint sales. Our first quarter adjusted EPS was once again up year-over-year, with moderating input costs and improving manufacturing performance, mitigated by lower sales volumes and higher wage and benefit costs. As we indicated in January, we had a large customer win last year at Walmart, and a significant portion of lower volumes year-over-year was driven by this prior year $40 million load-in. We're also impacted by lower demand in Europe, including the effect of fewer selling days in March stemming from an early Easter holiday this year. We also experienced ongoing tepid global industrial production. Adjusting for these year-over-year comparison items, volumes were nearly flat, continuing the underlying positive volume trajectory over the last five quarters. As I'll discuss in our outlook, I fully expect positive sales volumes in Q2. A benefit for us during the quarter was China, where despite a challenging general economy, our portfolio delivered double-digit organic sales growth, reflecting our strong mix of well-established businesses in the country. For PPG, India also grew by double digits in the quarter. In addition, our commercial teams executed well and drove solid global organic sales growth in our aerospace, specialty coatings and materials, and protective and marine coatings businesses. Our selling prices were flat, with positive pricing in the Performance segment offsetting lower pricing in the Industrial segment. First quarter pricing comparisons include a transitory unfavorable impact from European energy-related pricing indices that were put in place during a period of extremely high energy prices in that region in the first quarter of 2023. We experienced lower energy input costs in the quarter to offset this lower index-based pricing. We expect total company selling prices to be slightly positive overall in 2024, as targeted structural selling price increases have been implemented in several of our Performance segment businesses, offsetting some index-based pricing contracts in the Industrial segment. Our operations have benefited from further improvement as we experienced stable upstream and downstream supply chains and customer order patterns. From a supply perspective, the vast majority of our suppliers have sufficient or excess capacity as we continue to experience moderating input costs. This is noteworthy as we are just entering the peak buying period due to the overall seasonality of the paint industry. We also increased our growth-related investments, supporting initiatives that will deliver volume gains later this year and going forward. Building off of the full year 310 basis point improvement in total segment margins in 2023, further margin improvement remains a priority in 2024. This will be driven by stronger sales volumes as the year progresses, improved manufacturing productivity, and moderating input costs from historical highs. Specifically on manufacturing productivity, our improved operating cadence will be more financially impactful during our peak seasonal quarters as we deliver additional volume growth. In the first quarter, we delivered on our margin improvement commitment, with the Industrial segment margins improving by 100 basis points versus prior year and the Performance Coatings businesses margins were also up by about 40 basis points as favorable pricing and moderating input costs were mitigated by lower volumes and higher wage inflation. From a cash perspective, we expect another year of excellent cash flow and our balance sheet remains strong, including lower inventories year over year. We'll continue to follow our legacy of utilizing our strong cash flow and balance sheet to create shareholder value. In the first quarter, we repurchased approximately $150 million of PPG stock, reflecting our commitment to use excess cash to create shareholder value. Additionally, yesterday, our Board of Directors increased our share buyback authorization by an additional $2.5 billion, bringing our total share repurchase authorization to approximately $3.4 billion. I'm pleased with the progress we've made on our enterprise growth initiatives. We executed strong growth from selling our innovative products into the mobility space and continued to further utilize our world-class distribution of 5,200 concessionaire locations in Mexico to drive additional non-architectural coatings products into one of the world's fastest-growing economies. In automotive refinish, customer adoption of our industry-leading digital tools increased, yielding nearly 400 additional net body shop wins. These digital tools include our LINQ services and MoonWalk mixing machines, both of which are best-in-class and are focused on improving body shop productivity. To date, we've sold over 2,000 MoonWalk mixing machines and approximately 2,700 LINQ subscriptions. We announced strategic reviews of the architectural U.S. and Canada business and the global silicas product business in the first quarter. Strategically, we are driving this portfolio optimization with a goal of transforming to a higher-growth, higher-margin company. As an example, excluding the architectural coatings business in the U.S. and Canada, Performance Coating segment margins would be an average of 200 to 300 basis points higher than the last several years. We'll communicate a determination of a path forward on these strategic assessments when appropriate, with our target of no later than the third quarter. Now, I'll comment on our second quarter outlook. We expect to deliver adjusted Q2 EPS between $2.42 and $2.52 per share, which at the midpoint would be 10% higher than our previous record quarterly EPS. While we anticipate global industrial production to remain at low absolute levels and demand to be uneven by geography, we expect our overall second quarter sales volumes to be positive by a low single-digit percentage, aided by organic growth in aerospace, protective and marine, and our share gains in packaging coatings. We project continuing solid growth from our businesses in China, our third largest country for sales, led by our automotive OEM business where our strong positioning with electric vehicle OEM producers will drive further sales. Additionally, we expect to deliver further sales growth in Mexico, our second largest country for sales, leveraging our strong position across many businesses as well as our world-class distribution network. We are confident that PPG's unique geographic profile with strong and growing positions in China, Mexico, and India, along with stabilization and eventually modest growth in Europe, and the continued improvements in the U.S., will support PPG's consistent sales volume growth as we move forward. We anticipate overall company selling prices to be flat to slightly positive in the second quarter as the impact of index-based contracts in our Industrial segment will be offset by selling price increases in our Performance Coating segment. There's still some unfavorable pricing impact and offsetting energy input cost benefits from prior year European energy surcharges, but it's less than the first quarter. With regard to commodity raw materials, supply remains ample, and we will continue to realize benefits from moderating input costs. We expect mid-single-digit percentage raw material deflation in the second quarter following the realization of high-single-digit percentage decreases in Q1. We're watching oil price and feedstock volatility, and we will manage any impact accordingly, although we expect that recent oil price increases will be absorbed upstream. Looking at the remainder of 2024, we remain confident that we will deliver positive sales volumes in each remaining quarter in 2024, including our growth in China and India. We'll also execute on our more than $270 million and growing order backlog in aerospace, driving further growth in our well-positioned businesses in Mexico and driving expanded benefits of our key growth initiatives across electric vehicle, auto parts, powder coatings, and various digital solutions. PPG remains focused on our enterprise growth initiatives to drive higher sales volumes and fully capitalize on our technical and service capabilities. We'll drive further improvement of our operating margins aided by sales volume growth leverage and our initiatives to drive manufacturing productivity following several years of supply chain and other disruptions, and we will diligently manage our costs and continue to execute against previously approved restructuring actions. Lastly, we entered the second quarter of 2024 with a strong balance sheet, which provides us with flexibility for further shareholder value creation. Thank you to our more than 50,000 employees around the world who partner with our customers every day to drive mutual success by providing best-in-class paints, coatings, specialty materials, including productivity-enhancing and sustainable solutions. Thank you for your continued confidence in PPG. This concludes our prepared remarks. And now would you please open the lines for questions?

Thank you, team. Your first question comes from the line of Ghansham Panjabi from Baird. Your line is open.

Thank you, operator. Good morning, everybody. Tim, I know you have a lot going on across the portfolio by business and also by geography, but your guidance embeds quite a bit of an earnings improvement during the back half of the year on a year-over-year basis. So I guess just on that, can you just lay out the specifics that underlay your confidence for that dynamic to play out, especially with some of the upstream input costs, such as energy trending higher? Thank you.

Yes, sure Ghansham. Thanks for the question. I'll tell you how I'm feeling about the full year guide here. We have a bold 10% EPS growth target off of a strong record year last year and on a very challenging plan. But we've got strong reasons to believe and we're confident in that. First of all, we've proven over the last several quarters what we can do on margins and cash. That gives us optionality. We believe that our strong volume momentum will continue. We went from minus 3%, minus 2%, minus 1%, now essentially flat, without the one-timers, we're expecting positive volume the rest of the year. I'm satisfied with where pricing is. We continue to get price and performance. We've got some indexing offsets in industrial, but I'm confident in that. We've got manufacturing momentum. We're starting to deliver on the productivity initiatives as well as some incremental volume leverage. Portfolio, we're starting from a position of strength in a number of our countries and businesses, aerospace, Mexico, China, India, PMC, automotive. We've got share gains in the process of being launched across packaging, refinish, and industrial coatings. We've got our enterprise growth strategy initiatives. And we do have some optionality, again, with capital deployment. So we feel good about the ramp between Q1 to Q2 and the second half of the year, Ghansham.

Hey, Ghansham, this is Vince. Just as we talked, strong balance sheet in our full year guide. We don't have any further cash deployment baked in at this point, as we alluded to in our press release, we did purchase about $150 million of shares in the first quarter. But our full-year guide does not assume additional cash deployment at this point. In the remainder of the year we'll make those decisions on a real-time basis.

Thank you. The next question comes from the line of John McNulty with BMO. Your line is open.

Yes. Good morning. Thanks for taking my question. So maybe on the price versus raws dynamic. I guess can you speak to whether you expect to see your raw material basket down from Q1 to Q2? And then on the pricing side, if we take out the indexing, which really should be kind of a net neutral, what portion of your business do you expect to see real pricing as we're pushing forward? Because it does sound like you've got a number of initiatives to push further price. So can you help us to think about those things?

Yes. Let me just do the math. This is Vince, John. Let me do the math on the pricing. Again, we had in Q1 on a year-over-year basis, European energy surcharge is really reflecting the high cost of natural gas in Europe last year. That was about $15 million on a year-over-year basis. As you alluded to, John, that was completely offset, an exact pass-through in our cost of goods sold. But if you're looking myopically at the price line, that's about $15 million, and we have about half of that carryover in Q2. So $6 million, $7 million in Q2. We still have energy surcharge impact. Excluding that, I would exclude that as what would be our structural pricing. And Tim is going to answer the raw's question.

Yes. John, thanks for the question. As far as progression from Q1 to Q2, Q1, we did say they were down high single digits, which was better than our forecast of mid-single digits. Q2, we believe, down the mid-single digits. And we're confident enough now to issue full-year guide on raws being down in that low single digits to mid-single digits for full year 2024. So we've got better visibility now into what we believe that price of raws will look like for the rest of the year.

Thank you. The next question comes from the line of Michael Sison with Wells Fargo. Your line is open.

Hi, guys. Nice start to the year. You talked about being confident in turning the quarter in volume growth in Q2. Maybe give us a little bit of color on how much market growth you need or macro help? And how much really just comes from your execution and maybe just some areas of growth that you're seeing in your end markets?

Yes, Mike, it depends on several factors. One key aspect is the overall trend of the company, especially when excluding the Walmart load-in. Once we adjust for that, we have been experiencing growth. Additionally, we are beginning to see gains from several share wins across some of our businesses from last year, particularly as we launch in Q2 within industrial, Refinish, and packaging segments. Although we are only partway through the month, we are confident in the current orders and shipments so far this quarter. Therefore, we feel positive about achieving volume growth for Q2.

Thank you. The next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open.

Yes. Good morning. Two questions off the buyback. One I just want to clarify. So Vince, in the annual guide you're saying that there's no more buybacks that you're not even rolling through the $150 million per quarter into that annual guidance number. And then maybe for Tim. If you look at the $150 million run rate, then take you over five years to eat through the program that you've now got available, how should we think about that buyback ramping going forward? What level should we put into our models?

Duffy, this is Vince. You stated it properly. We obviously purchased $150 million in the first quarter. That will obviously be impactful to the financials. We have nothing further assumed in our full year guide for the balance of the year.

The way that I'm thinking about the additional authorization that we got from our Board yesterday is really consistent with what we've done and said over the last number of years and quarters. We said that, obviously, we're going to pay our dividend. Obviously, we're going to do what we need to do with the CapEx to grow our businesses organically. We paid down all of our high-cost debt last year. And we've consistently said that in the absence of shareholder value-creating acquisitions, we're not going to let the cash sit on our balance sheet. And we did that in Q4. We did it in Q1. So we're really sticking with that mantra. The way to think about magnitude going forward will depend on all of those factors, what's our actual leverage sitting at versus what we see in our acquisition pipeline after we've done those kind of organic things of dividend and CapEx.

Thank you. The next question comes from the line of David Begleiter from Deutsche Bank. Your line is open.

Hi, good morning. Tim and Vince, in U.S. architectural, have you seen any disruption since your announcement in late February? What's the level of interest in these assets? And what's I think the most likely outcome of this review and process. Thank you.

Good morning, David, it's Tim. We developed a very detailed communications plan before our announcement on February 26, which we implemented shortly after the press release was issued and have continued to follow through with. We have experienced minimal disruption, if any at all. There has been some chatter, but we have solid communication strategies in place. We are actively engaging with our key customers, employees, and stakeholders. So, the business has seen very little disruption. Regarding the level of interest, we anticipated strong demand due to the strength of our brands and assets in the U.S. and Canadian architecture sector, and I'm pleased to share that the interest has exceeded our expectations. We feel positive about our current position. As for determining the most likely outcome, David, until we start receiving numbers and can assess what will be best for long-term shareholder value creation, it is still early. However, we aim to be clear about our future direction in Q3, and we expect to have a much clearer idea of what this structure may entail in the next quarter or so, David.

Thank you. The next question comes from the line of Chris Parkinson with Wolfe Research. Your line is open.

Thank you very much. Tim, you have a long history with the company, and you've initiated some significant changes in the first six quarters. If you step back from the North American architecture and specialty reviews and examine your other businesses in performance and Industrial, how confident are you compared to a few quarters ago or last year? Do you believe these remaining businesses are leading innovators in R&D and will achieve above-market growth in their respective end markets over the next year or two, or possibly longer? Has your confidence in the portfolio shifted positively or negatively?

Hi, Chris. Thank you for your kind words at the start. I feel more assured than ever that we are developing a portfolio at PPG that will achieve higher growth and margins. As you mentioned, we made some strategic cuts last year to parts of our portfolio that didn't align with our growth strategy and performance targets. In the first quarter of this year, I announced two significant changes. Looking ahead, you shouldn’t expect us to announce another major divestiture in the near future. I am satisfied with our current portfolio at a high level. However, we will continue to make smaller adjustments, and one of our principles going forward is that every business must justify its place in the portfolio based on its performance outlook and alignment with our focused growth strategy. I also want to emphasize that our approach to the portfolio involves not only pruning and divestitures but also aiming to make targeted acquisitions that align with our performance outlook and growth strategy.

Yes. Chris, this is Vince. If you think about the remaining portfolio, the businesses, we have the right to win in the businesses, whether it be on a regional basis or on a global basis. As you alluded to in your question, most of these businesses have strong technology associated with them. We've talked earlier in our comments about the margin profile, if absent these businesses that we're doing a strategic review on, which again would be higher on a pro forma basis. So again, the right to win, good margins, good customer pull, those are the things that we're focused on with respect to the portfolio.

Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is open.

Thank you. Another coatings firm has suggested that you might separate North American architectural into Pro versus DIY and deal with them separately. Could you comment on that?

There are many theories out there from various parties. The level of interest we've observed is very high, exceeding our expectations. Not all parties agree on what actions we should take or what the final outcome might be. I want to assure everyone that we are intentionally exploring all possibilities. We will carefully consider every option that comes our way and will make decisions that are in the best interest of shareholder value. It's still too early to provide further details, as we have not yet received any numbers.

Thank you. The next question comes from the line of Patrick Cunningham with Citigroup. Your line is open.

Hi, Good morning. Thanks for taking my question. On the higher CapEx range for the year, what are the areas you're contemplating additional growth investment? And should we expect this to be a reasonable CapEx base for the next few years?

Yes, Patrick, this is Vince. We had some capital expenditures from last year carry over into this year because we didn't complete everything at the end of last year. Therefore, our Q1 capital is slightly elevated. We're also planning for additional growth-related capital expenditures in Mexico and India. As we mentioned during our Q1 and year-end calls, we expect capital spending to be in the range of 2.5% to 3% over the midterm. We still have some leftover capital from last year and this year, and we are working to catch up from COVID impacts. Again, our current spending is a bit above the norm, which we acknowledged in our January call, but you can expect us to return to our typical range over the midterm.

Thank you. The next question comes from the line of Frank Mitsch with Fermium Research LLC. Your line is open.

The LLC portion is very important. So I appreciate that. Listen, I know that some of the growth you're expecting in the next three quarters for 2024 are tied to higher operating rates, volume improvement, productivity gains. But as you also indicated, you're also spending more money on growth initiatives and so forth. How do we think about the interplay between those two in terms of millions of dollars or EPS, et cetera? Any way that you can kind of frame the interplay between those two?

Yes. Well, Mr. Mitsch, this is Tim. The net-net of the growth that we're expecting versus the investments in growth that we're making, net-net, we're expecting that to deliver the at midpoint, 10% EPS growth for the year. Those investments that we didn't just start making those in Q1, we started making those last year, and a number of those will start to actually hit the P&L now coming here in Q2, Q3, and Q4. Beyond that, Vince, I don't know if you want to add any details?

No. These investments include areas like digital, as Tim mentioned, related to our consumer-facing businesses. In Refinish, we are enhancing digital tools to improve customer interactions. We also have investments in COMEX, where we've achieved several quarters of record earnings. Our Protective business is expanding its capacity, and we still have some infrastructure spending that hasn't yet reflected in our financials, but we are preparing for that. In Aerospace, we are increasing capacity to address our growing backlog more efficiently. These are some examples. If you notice our overhead costs are rising, it's partly due to the expenditures related to this growth.

Thank you. The next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open.

Thanks and good morning, everyone. Can we discuss Refinish? It would be helpful to understand the current volumes compared to pre-COVID levels. I'm trying to grasp the situation as you're indicating volume declines for the first and second quarters against challenging comparisons from the same period last year. Does this suggest that we have normalized our volumes post-COVID? If so, what should we expect for the Refinish segment in terms of volume and pricing going forward?

Yes, Tim here. Thank you for the question. To address the easier part first, regarding pricing, we will continue to maintain our pricing strategy in the Refinish sector as we have in the past. The value of the paint and the associated tools and services has been consistently improving, which makes it an essential, yet relatively low-cost aspect of repair. Therefore, we will proceed with our pricing approach. In terms of volume, our Q1 performance was below our expectations, and recent claims data for March in the U.S. was significantly lower than anticipated by the industry. The refinish industry tends to benefit from severe weather events, such as ice storms in the Southeast or Southwest U.S., but this winter was milder than expected, particularly in the southern regions. As a result, claims in March decreased considerably, negatively impacting Q1 performance, and this will likely carry into Q2. This is partly why we are projecting mid-single-digit sales growth for Q2. Additionally, we had a very strong Q2 last year to compare against. That said, I've discussed this with Jancy, who leads that part of the business, and we've spoken with our key end users in recent weeks. They share similar observations regarding Q1, but we expect a return to more typical growth in the second half of 2024. We just need to get through Q2. Regarding the industry compared to 2019, aside from the unique situation in March, overall we are seeing only low to mid-single-digit declines compared to pre-COVID levels. We're noting positive trends such as increased activity in downtown areas. To summarize, despite a slight decline in Q1 and expected decline in Q2 due to one-off weather and claims issues, we are optimistic about the second half of this year and confident in the long-term prospects of our business. This is without considering any market share gains, although we are continuing to grow our share with our digital tools, as I mentioned earlier.

Yes. And Vincent, this is Vince. Just a point of clarification. The claim data, Tim referred to, these are industry claims, which are down again low double digits. The current reading was down low double digits for the month of March. So these are industry collision claims that set the entire industry.

Thank you. The next question comes from the line of Stephen Byrne with Bank of America Merrill Lynch. Your line is open.

Thank you. Tim, I'm trying to understand why the U.S. architectural business has been only slightly profitable on average for the past five years. Has there been any improvement in that trend? Has the partnership with Home Depot provided any benefits? I ask because one of your store managers mentioned that you have to match Home Depot's pricing, which wouldn't be beneficial for his margins. Overall, is it a matter of the number of stores, or do you need to adopt a concessionaire model in this business like COMEX?

Thanks, Steve. Over the past couple of years, we've experienced some fluctuations, but overall, our performance has been below the company's average. We have been investing significantly, especially in the Home Depot model. The low level of profitability over the past several years can be attributed to several factors, including challenging macroeconomic conditions and the lingering effects of COVID-19 across the entire industry. We've been focusing on our own stores, which operate on a high fixed-cost model that requires a certain level of sales volume to be effective. Unfortunately, due to various macroeconomic factors and the post-COVID environment, that sales volume has declined. While the Home Depot Pro initiative is making progress and positively impacting our results, it hasn't reached a level sufficient to counterbalance the macro challenges, especially on the DIY side. We're currently experiencing momentum with our omnichannel model, which combines Home Depot, our stores, and our independent dealers. However, we recognize the need for a partner to expedite our progress and achieve profitability that aligns with the company average. This is why we're considering various scenarios for this business.

Thank you. The next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open.

Thanks very much. I think in your Performance division, in the first quarter of the six categories that you look at Aerospace, Refinish, Architectural, all of them came in lower than you expected on a sales basis. And my impression is that things weakened in March globally. So if we forget the second half for a moment, is your expectation now that the second quarter is a little bit weaker than you thought it would be before as you began the year? And then secondly, as far as the share repurchase goes, I think over the past five years, your average purchase price is about $130 million. And so how do you evaluate the success? Or what are you trying to achieve in taking $3.4 billion and repurchasing your shares? How will you gauge the success of that allocation of capital?

Thank you for the question, Jeff. I'll address the momentum aspect you raised, while Vince will respond to the share repurchase inquiry. To be fully transparent, there were a few factors in Q1 that were not as strong as we anticipated. We were aware of the absence of a Walmart load-in, which is straightforward math. Additionally, we encountered a more significant negative impact from Easter timing than we expected. However, we're beginning to observe some recovery post-Easter, even though it’s still early in the month. While the first quarter was challenging, we anticipate this issue will shift to Q2. Two other points to mention are that Europe was weaker than we had projected, and the combination of industrial production and our share wins launching wasn't as robust as expected. Looking ahead to Q2, the Walmart load-in comparison will not be present. I noted that we are seeing some recovery in Europe, and although it's early, we are optimistic about what we see in April. I'm not claiming it will bounce back drastically, but we don't foresee further decline. On the industrial front, we are rolling out several share gains from the second half of last year in Q2. Lastly, regarding the Refinish segment, March was softer than we anticipated, but we expect a strong performance in the second half for Refinish.

Jeff, this is Vince. Regarding share repurchases, your figures are correct when looking back over the past few years. Historically, there have been periods where we conducted minimal share buybacks for several years consecutively. Usually, when we are more active in mergers and acquisitions, we tend to buy back a significant portion of shares during times when the M&A market is weaker and we have excess cash or capacity on our balance sheet. We also assess what we believe to be our stock's intrinsic value. With a projected growth rate of 10% going forward, there are times when it's essential for us to consider share repurchases as an option. As Tim mentioned, we have a prioritized list for cash deployment, which includes dividends, maintaining business health with capital expenditures, looking at M&A opportunities, and evaluating the intrinsic value of the stock, which guides our cash allocation strategy.

Thank you. The next question comes from the line of Kevin McCarthy with VRP. Your line is open.

Thank you and good morning. Tim, a few questions for you on the subject of Europe. I think EMEA was 31% of your mix last year if you do wind up divesting some or all of U.S. and Canada architectural, maybe that number will rise a little bit, moving forward. And it sounds like in contrast to China and India, which came in very strong, Europe did come in weaker than you expected. So a few questions would be, A, what is driving the variance versus your prior expectation in Europe exactly? B, maybe you can provide some color on the consumer-facing businesses that you have there versus industrial. And I'm curious to understand whether rationalization of your customers' capacity is playing a role at all. We were hearing more and more about that from various chemical companies anyway. So just a little bit more color on the region there and kind of what glide path of volume you need macro-wise to achieve that positive volume growth overall for the company that you alluded to?

Thanks, Kevin. I'll start with the last question. We haven't observed any significant capacity rationalization among our customers that would impact our performance in Europe. In Q1, we experienced the most challenges in our consumer-facing business, particularly Deco, which was slower than anticipated, especially in France and the Nordics. However, we did notice some positive signs in the East, where our performance has been strong, providing us with optimism looking ahead. In the Industrial segment, Automotive underperformed compared to our expectations for the quarter. As we look forward, early April has shown improved order volumes and shipments. We believe the Deco business in the hardest-hit countries is beginning to recover, with customers not expecting further declines, and we're starting to see recoveries in the East. While these markets may not be the largest, they are crucial to our overall portfolio, including key positions in Poland, Romania, Hungary, and the Czech Republic. We do not anticipate worse conditions for Deco but are cautious about expecting a rapid recovery; instead, we foresee incremental improvements. Given the cost actions we've implemented in Europe, even a small increase in volume can lead to significant benefits. For Automotive, we're taking a more cautious approach as well, not seeing further deterioration but expecting only modest recovery. Overall, Europe has benefited from a stable macro environment for over a decade. Our teams have demonstrated their ability to manage positively in terms of product mix, pricing, and structural costs, enabling us to deliver earnings and cash in such an environment. In summary, Q1 was more challenging than we had expected for those businesses, but we anticipate gradual improvements that will enhance our leverage, and we're monitoring the situation closely. If necessary, we will implement additional structural cost measures.

Yes. And Kevin, this is Vince. I'll just add a point on architectural. As Tim mentioned, lower than our expectations in Q1, largely attributed to March. If you look at our performance through the first two months of the year, so Jan, Feb, that business was on our targets. We do feel there was a bigger Easter impact that we're seeing, again, a snapback at least early in April in that business.

Thank you. The next question comes from the line of Aleksey Yefremov from KeyCorp. Your line is open.

Thank you and good morning. This is Ryan. I'm on for Aleksey. Just wanted to talk a little bit more about the targeted pricing you're doing in Performance Coatings. Wondering if you can discuss some of the areas other than Refinish. And then just wondering if you guys are like having some more success in recent weeks following this uptick in oil. Thanks.

Yes. Regarding the question on pricing, we will continue to execute as we always have in Refinish. Across all of our performance areas, we provide a value proposition that goes well beyond the actual paint. This allows us to counteract wage inflation, which has exceeded our expectations, as well as higher logistics expenses. We typically offer advanced technologies in our products along with additional services and tools that help our customers beyond what’s in the can of paint. We anticipate price increases in Refinish, and you will also see incremental price adjustments in Aerospace. We expect this in certain parts of PMC as well, where we have strong sustainable solutions that our customers are very interested in. Overall, we expect price increases throughout nearly the entire Performance Coatings portfolio.

Thank you. The next question comes from the line of Michael Leithead with Barclays. Your line is open.

Great. Thanks. Good morning, guys. Question for Vince on raws and inventory. Can you just talk about where you guys are relative to more normalized raw material buying patterns? It looks like you maybe still have a few extra days of inventory. And then I appreciate you don't give free cash flow guidance. But just given your full-year assumptions of raws down low to mid-singles, volume up for the full year. I guess broadly, should we still expect working capital to be a source of cash this year? Thanks.

Yes, I’ll address that, Michael. Our expectation is that we will continue to reduce our excess inventory, which is higher than our historical levels. We are currently carrying four to five days of excess inventory, mainly in raw materials, down from ten days last year. We aim to make significant progress in Q2 and remain cautious with our purchases for the rest of the year, which should have a positive impact on working capital and free cash flow year-over-year. As Tim mentioned earlier, most of our suppliers have surplus supply, which positions us well in this market, and we will continue to manage our raw materials during this peak production season.

Thank you. The next question comes from the line of Laurent Favre from BNP Paribas. Your line is open.

Yes. Good morning. I had a question on China. I think you talked about growth in Q1. But presumably, this was still a quarter impacted by COVID. So I was wondering, when you look into Q2, what kind of momentum are you seeing there on the ground? Thank you.

Hi, Laurent. Thanks. There was some impact from COVID, but Automotive was a significant driver, and we expect that to continue. We are anticipating double-digit, high single-digit growth again in Q2 from automotive. Industrial Coatings grew in China for us, and we expect that to maintain its momentum. Refinish also experienced growth in China, and we expect that to persist. We have been more confident than others regarding China over the last several quarters, and our expectations are being realized. While we do not foresee an immediate return to the growth rates of five to ten years ago, we remain confident in sustained growth in China.

Yes. And just a couple of other data points. Our Aerospace business is doing well there. The Chinese New Year brought about record travel in the country. And again, industrial activity there for our set of products and our set of businesses, we expect to remain strong.

Thank you. The next question comes from the line of Arun Viswanathan with RBC. Your line is open.

Great. Thanks for taking my question. I just wanted to go back to the volume outlook. So it looks like you're guiding organic sales to be up low single digits in the second quarter and for the full year as well. So if you look at that second quarter number, it looks like low single digits, you can have some targeted price initiatives. So should we assume kind of flat volumes for Q2? And then similarly for the full year, how are you thinking about kind of consolidated volume growth? I know you've given out some guidance by segment as well on the slides. But it would look like that you need a kind of ramp to about the low to mid-single digits on volumes in the back half. Am I reading that correctly? Or yes, maybe you can just clarify how you're thinking about volumes, how they should evolve through the year.

Yes. Thanks, Arun. It's Tim. You're reading the second half, I think, correctly. But Q2, one adjustment, you said price up, volume flat. We're actually expecting more price flat volume up. Some of that because of what Vince talked about earlier, we still have a little bit of carryover of price negativity from that European energy cost pricing from last year. So Q2 price flat volume up and the rest of the year, I think you described it well is that we'll see volume growth momentum moving through Q3 and Q4.

Thank you. The next question comes from the line of Josh Spector with UBS. Your line is open.

Yes. Hi, good morning. I wonder if you could just talk about Americas Architectural a little bit more. So excluding the loaded impact, it seems like your volumes are up slightly curious just how much of that is COMEX continuing to grow versus what you're seeing in the U.S.? And if you could help us kind of delineate in the U.S., what's going on with Pro and DIY from a volume perspective in the first half?

Yes, Josh, it’s a bit of a mix because while Mexico had another strong quarter in terms of sales, earnings, and cash, the impact of Easter was felt more there than here. It’s a significant holiday for our partners in Mexico. We also had solid performance in our U.S. architectural business compared to last year and the overall market. We believe we gained market share in 2023, and that momentum carried into Q1. While the DIY side remains weak, we observed good performance. We view our Pro business comprehensively, considering our own network, our partnership with Home Depot, and our various partners within the private dealer channel. Despite the negative macroeconomic news related to housing this week, our architectural U.S. business saw a low single-digit increase, particularly on the Pro side.

Thank you. The next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open.

Hi, good morning. I was wondering if you could give a little more color on what you're seeing in India. Obviously, you gave us some comments on what you're seeing in China. But what are some of the key markets that you're serving in India? What's your current position? And I guess maybe what stage or inning are we in, in terms of the growth potential that you see in India?

Yes, Mike, I was just there. I just got back a couple of weeks ago and it was fascinating. I've been going to India for 25 years and there was always a lot of talk of improvements in infrastructure and public investment and growth. It's happening now. It is actually happening. It's very noticeable. If you go regularly, you will see a big difference there. A lot more cranes, a lot more highways being constructed, trains, and airports. We've got a very good position there, mostly on Automotive, Industrial and Refinish and all of those businesses are growing. And we feel really good about the growth trajectory going forward. Now it is not in our top five countries today. But the reason that we've started to highlight it is, one, we do have a very good position there. And for the first time in a long time, we see real tangible industrial production and infrastructure growth on the ground.

And Mike, what's fostering that is we are seeing a significant amount of reshoring in Asia to India. The economy there is growing as robustly as Mexico. And again, that's driving that industrial activity.

Thank you. The next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Good morning. Just one quick one. On the proposed, possible exit of the silicas North and the restructuring of the North America Coatings. How much would that have changed your volatility across your business? And I guess just going forward, I mean, you talked about M&A sort of leading to mostly focusing on higher growth, higher margin. To what degree does the volatility of the businesses you're acquiring factor in? Or just how are you thinking about that managing that going forward?

Sure. Thanks, Laurence. The volatility, the cyclicality, the seasonality are factors, of course. But I would say the number one and number two factors are, does it improve our overall organic growth profile on a long-term basis for the company? And does it improve our overall margin profile? So those are our first two factors. And then if we can do it without adding cyclicality and seasonality even better. To the first part of your question, clearly, architectural U.S. Canada is one of our more highly seasonal businesses. So if we do separate entirely from that business, you can visualize the outcome there. And I would say the silicas business does have some cyclicality to it, because part of that business is tied to auto OEM production in tires, but only a portion of that business, other parts of it are tied to automotive aftermarket and tires. Other parts are tied to battery separators, consumer electronics. So I would say it will have some impact, but not enough that it's going to, I think, affect your modeling of how you might model the company in its entirety from a cyclicality standpoint.

Yes, Laurence, Vince, just a reminder, as we said in February, this has a multiple hundred basis point impact on sales volume improvement. If you do a pro forma basis. But again, looking at that for a period of time, it's not significant in terms of cyclicality.

Thank you. There are no further questions at this time. I will now turn the call back over to Jonathan Edwards.

Thank you for your ongoing confidence in PPG. We also appreciate your solid operating performance. This concludes our prepared remarks, and we value your interest and trust in PPG. This wraps up our first quarter earnings call.

Thank you, everyone. This concludes today's conference call. You may now disconnect.