Operator: Good day, ladies and gentlemen, and welcome to the PPG Industries Second Quarter 2013 Conference. My name is Shaqwana, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference.
I would now like to turn the presentation over to your host for today's call, Mr. Vince Morales. Please proceed, sir.
Vincent J. Morales - VP, IR: Thank you. This is Vince Morales, and good afternoon. Welcome to PPG's second quarter 2013 financial teleconference.
Joining me from PPG today on the call is Chuck Bunch, PPG's Chairman and Chief Executive Officer; David Navikas, Senior Vice President, Finance and Chief Financial Officer and Frank Sklarsky, Executive Vice President, Finance.
Our comments relate to the financial information released today, Thursday, July 18, 2013. I will remind everybody that approximately one hour ago; we posted detailed commentary and relating presentation slides on our Investor Center at ppg.com. These slides are also available on the webcast site for this call and they provide additional support to the opening comments that Chuck will make momentarily.
Following Chuck's perspective on the Company's results for the quarter, we will move directly to Q&A. Both our prepared commentary and discussion during this call may contain forward-looking statements, reflecting the Company's current view about future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The Company is under no obligation to provide subsequent updates to these forward-looking statements.
Our presentation also contains certain non-GAAP financial metrics. The Company has provided in the appendix of the presentation materials, which are also available on our website, reconciliation of these non-GAAP financial metrics to the most comparable GAAP financial metrics. For additional information, please refer to PPG's filings with the SEC.
Now, let me introduce PPG's Chairman and CEO, Chuck Bunch.
Charles E. Bunch - Chairman and CEO: Thank you, Vince, and good afternoon, everyone. We appreciate your continued interest in PPG. For the past several years, under a variety of different economic circumstances, we have delivered consistent earnings growth. We are pleased to continue this trend as the second quarter financial results included all-time records for both sales and adjusted earnings per share.
Our adjusted earnings per share of $2.45 from continuing operations exceeds our prior record set last year. Of equal importance, this quarter we more than fully replaced the earnings per share reduction stemming from separating our former Commodity Chemicals business.
This record performance was achieved despite continued divergence in the level of economic activity in the major regions of the world. During the quarter, we benefitted from generally modest but consistent growth in most North American end-use markets. Solid growth also continued for all our Asian businesses except the marine coatings market. Yet again, demand in Europe was lower year-over-year, although we are experiencing a fairly consistent pace of business in the region and a few of our businesses did achieve volume growth in that region this past quarter.
The major factors in our improved financial results were continued sales and earnings growth in several of our businesses; including, automotive OEM, aerospace, and automotive refinish; proactive and aggressive cost actions in all of our businesses, including stringent discretionary cost management and continued benefit from our 2012 restructuring program, and higher sales and earnings benefits from cash deployed on recent coatings acquisitions.
As a result of these and other factors, we delivered coatings segment earnings growth of 25% versus last year's record level. Additionally, each major region achieved higher earnings with North America more than 20% higher, emerging regions growth of about 15%, and higher European earnings of 8% despite the continued economic challenges in that region.
At the outset of the quarter, we completed the acquisition of AkzoNobel's North American architectural coatings business. Results for the acquired business were incorporated into our Performance Coatings segment, along with PPG’s companion legacy architectural business.
We were pleased with the business performance in this initial quarter as it is pacing slightly ahead of our target. The business had sales of approximately $475 million and delivered an earnings return on sales of mid-single-digit percentages. We realized $60 million of lower annual cost when the transaction closed benefiting this quarter by about $15 million. In addition, we achieved some other initial acquisition related synergies.
We still have a great deal of work to do, but remain confident that we will deliver our three-year synergy target of $200 million annually. To that end, our Board of Directors just approved a $102 million restructuring program focused primarily on the synergy capture for the acquisition. The program also includes targeted actions for certain businesses, which continue to face challenging market conditions, such as protective and marine coatings and certain European businesses including architectural coatings and fiber glass. This restructuring program reflects the continued focus on operating and cost excellence which is what you have come to expect from PPG. We anticipate the majority of the restructuring actions will be completed by the end of 2014.
One final comment on the second quarter is that it is typically our largest quarter from a seasonal perspective, and we generally experience normal season trends in most businesses and regions.
Looking ahead to the third quarter, we remain optimistic about our earnings growth momentum driven by many of the same factors that we experienced in the first half of the year. This includes benefits from our recent acquisitions and proactive cost management. We anticipate normal seasonal trends in our businesses and regions and expect several businesses such as automotive OEM and aerospace to remain growth drivers.
Our balance sheet remains very strong, with about $1.8 billion of cash and short-term investments at quarter end. We continue to analyze prudent cash deployment opportunities focused on growing our earnings and rewarding our shareholders. Overall, we continue to face mixed economic conditions and we were pleased to have delivered record results for our shareholders.
Thank you for your attention. This concludes our prepared remarks. Now, operator, would you please give instructions and open the phone lines for questions?
Operator: Kevin McCarthy, Bank of America Merrill Lynch
Kevin McCarthy - Bank of America Merrill Lynch: Question for you on the growth you experienced in coatings. I think you referenced 25% growth on a year-over-year basis. Just trying to parse how much was organic versus Akzo? I think you threw out a sales number 475 times mid-single-digits. So, would it be fair to say Akzo contributed $25 million or so in the quarter?
Vincent J. Morales - VP, IR: Yeah, Kevin, I think – this is Vince. I think that’s a fair number.
Kevin McCarthy - Bank of America Merrill Lynch: Then on the new restructuring initiative of a $102 million, is that exclusively part of your $200 million synergy goal looking out to 2015? Or are there other areas of the Company where you're taking additional cost actions at this point?
David B. Navikas - SVP, Finance and CFO: Kevin, this is Dave Navikas. Of the charge that we took, about 60% of it relates to the Akzo North America integration and the remainder relates to other actions in some of our other businesses where there's still that weak demand condition.
Kevin McCarthy - Bank of America Merrill Lynch: Then a final question I had was on Europe. I guess, you're running minus 4% there according to one of your slides versus minus 7% or minus 8% in the prior couple of quarters. Chuck, I think you mentioned in your prepared comments that you were seeing certain businesses that were actually growing; and I wondering if you could elaborate on that, maybe talk about where you might be seeing growth in the region.
Charles E. Bunch - Chairman and CEO: Well, growth, I would say in the region is very challenged right now, Kevin. If you look at several of our businesses like aerospace and packaging, we still have growth in those businesses. However, if you look at the automotive markets or the architectural markets, those are businesses where from an overall market standpoint we're still seeing negative growth.
Operator: David Begleiter, Deutsche Bank.
Ram Sivalingam - Deutsche Bank: This is (Ram Sivalingam) sitting in for David. Just a quick question on raws. Given that we're past the height of the paint production season, how are you thinking about TiO2 pricing in the back half of the year? And also, any update you can give on your usage reductions of TiO2 would be helpful.
Charles E. Bunch - Chairman and CEO: TiO2 pricing for the second half, we are in discussions now. So it would be too early to comment. We're looking overall at stable raw material pricing in the second half of the year. We continue to have success in terms of improving our productivity. In our formulations for TiO2 usage, we hit our targets last year in the 4% to 5% range. This year, we are on track for hitting those targets which we defined. This year is closer to 2% to 3%.
Operator: Robert Koort, Goldman Sachs.
Robert Koort - Goldman Sachs: Chuck, the detrimental margins in glass were pretty and sales looked like they changed by $4 million and profits by $15 million. Is there something in the near-term that can reverse or should we expect that same kind of pain from the fixed cost leverage? Or what exactly do you think is causing that?
Charles E. Bunch - Chairman and CEO: It was a disappointing quarter for actually both business units in glass for slightly different reasons. In our flat glass business, we had a poor quarter from a, let's call it, manufacturing and supply chain performance. We also saw some volume declines as we looked at some of our end used markets, like solar, that were lower, and we didn't get enough of a pick-up on the commercial construction side, which is our biggest market for that business. We also saw some year-over-year licensing revenue that was lower. So, I would expect that the third quarter we're going to improve our operating performance. And so I expect the flat glass business to still be challenged, but not to the same level that they were in the second quarter. On the fiber glass side, we had lower volumes especially in Europe, and we had lower equity earnings out of our PFG joint venture in Asia, which is targeted at the electronics market. So, I don't expect a significant improvement on the fiber glass side. We had pretty good results here in North America. But I would say that we are looking to improve slightly over what you saw in the second quarter. But certainly, I think we're going to face some of the challenges here in the third quarter.
Robert Koort - Goldman Sachs: If I might follow up on the U.S. architectural side, your same-store sales looked pretty strong in your stores, but through the big box, less exciting. I know Sherwin this morning had a similar comment about its non-store business. So, was there something that's not quite as exciting in the DIY market? Was this function of just a couple of lost business lines, or what do you attribute to the less robust non-stores business in the U.S. architectural?
Charles E. Bunch - Chairman and CEO: Well, in the two other channels, I would say, you mentioned we did lose price points at one of our major North American home center accounts. This is on the – let’s call it the legacy PPG side. So that accounted for some of the lower comps. We also have seen some weakness in what we would call the independent dealer channel, which is an important channel for both PPG legacy business, plus the newly acquired business. And the dealers we found were a little cautious. We had, what I would call, a second quarter – the weather and some other factors were not helping us as much as they were last year. We still think there is good growth there but right now the dealers were quite cautious in the second quarter as well. So that's why the numbers weren’t as robust for us as we would have hoped outside of the store channel.
Operator: Don Carson, Susquehanna.
Don Carson - Susquehanna Financial: Yes, Chuck, a couple of questions on restructuring and cash redeployment. First on transitions, I know earlier this year you indicated you were in some discussions with Essilor about future ownership structure of that business. Can you update us on that or give us a timeline and maybe indicate what the attractiveness of being in that business going forward is as opposed to be more of a coatings play? And then just if you could comment on the coatings acquisition pipeline? Are you at the point where if you don’t do any additional deals this year you might up your share repurchase targets of 500 million to 750 million?
Charles E. Bunch - Chairman and CEO: Well, Don, we are still in discussions with Essilor relating to the future of Transitions Optical. So, at this point, we do not have any additional comments on that subject. As far as the redeployment of cash, we're working the acquisition pipeline actively. We were able to complete not only the Akzo North American architectural acquisition in April, but we completed in May, the Deft acquisition, smaller, bolt-on, but quite successful. We're really pleased that this is going to be a positive for our aerospace business. We're actively working the acquisition pipeline. We have several – we think that are good potential opportunities, but obviously we are going to keep working them and hope to bring them in. We're pleased with our integration activities here with the Akzo business. We do think that it is although a challenge, we are responding very well, lots of work but lots of progress. So we're optimistic with the results of these latest acquisitions including Spraylat which we announced at the end of last year. So, we're more confident that we can continue to make acquisitions and successfully integrate them and achieve the targets that we set. If we, however are not able to consummate these deals, -- if you look at that range of share buybacks between 500 and 750, we would be looking to move that up into the upper end of the range if we can't bring in any new targets. Obviously, as we approach year-end, if we don't feel as confident about acquisition opportunities, we would certainly look at that overall target that we've set for ourselves in share buybacks.
Operator: P.J. Juvekar, Citi.
P.J. Juvekar - Citi: You had talked about a potential rebranding strategy in architectural paint, particularly for the Glidden brand in different channels. Any update on that? And then secondly, you talked about Lowe's share. Was there any share loss at Home Depot for the Akzo business?
Charles E. Bunch - Chairman and CEO: We are not in a position right now to announce any change in branding strategy for the Akzo North American business. It's been a little over three months. It's all hands-on-deck trying to get through the integration and ensure that all the customers are being supplied and serviced in a way consistent or better than they were prior to the acquisition. So, we're working on that, but we're not in a position to announce anything right now. And I think your second question, P.J. was – it was at Home Depot. There was no shelf space or share loss at Home Depot on the acquired business.
P.J. Juvekar - Citi: Secondly, on automotive OEM, you are growing two to three times the market. How long can that continue? I know a competitor that exited the business; sort of lost some share towards the end. So, can you just talk about the competitive dynamic in that market?
Charles E. Bunch - Chairman and CEO: On the competitive dynamics; it's always been a very competitive market. It's not a market, however, that you see a lot of share gains or losses in the short-term. These are usually longer-term decisions that the automotive manufacturers make typically (land) model years or when they are starting new production. Yeah, I think we’ve been well positioned in the past few years with several new technologies that we've introduced that have been well received by our automotive customers. We have been also well placed with many of the plants that have continued in service as the industry is restructured. We are very well positioned in the markets where we’ve seen either the largest recovery or the most growth. So if you look at the North American market, we're very well positioned. We're number one in this market, and we're also number one in the Chinese market. So, if you look at overall where you’re seeing the best performance from the automotive industry, we’re well placed in the areas where it’s really growing. We had good technologies. We've had a consistent strategy. So we've continue to do well. But I don't see these things as either short-term in nature These are longer-term trends, and if continue to do the things that we've been doing and the markets continue to hold up well, then I think this is a level of performance that we expect to continue.
Operator: Frank Mitsch, Wells Fargo Securities.
Frank Mitsch - Wells Fargo Securities: I'm looking at – very pleased to hear about the progress on the Akzo deal doing a bit better than anticipated. You had raised your cost reduction targets the last call from $160 million to $200 million. Looking at the math, you had originally targeted a 10% margin on that business but with that upgrade, it’s looking more like 12 or 13. What are the chances that we might see you bring that all the way up, a couple more points? And how confident are you that that 200 – in that $200 million number, and might we see some changes going on there in terms of synergy?
Charles E. Bunch - Chairman and CEO: Well, Frank, we feel very good about the $200 million synergy number. We're ahead of our targets for a realization of that, and I think we have a path forward. At this point, we're not raising the synergy targets for the acquisition. There is a lot of hard work ahead of us. So we know that we haven't – we've just begun to capture all of those opportunities, but we feel increasingly confident. But at this point, we still feel that $200 million is a – it is a good target.
Frank Mitsch - Wells Fargo Securities: Then in terms of getting the margins up even higher than that 13% or so?
Charles E. Bunch - Chairman and CEO: In the performance coatings segment or...?
Frank Mitsch - Wells Fargo Securities: The Akzo business.
Charles E. Bunch - Chairman and CEO: Oh, the Akzo business. Well, I think that we're going to see now how this thing plays out, and I'm sure we're going to share more information with the investors as the year goes on. We are three months into this. We feel good. But there is a lot of heavy lifting. So at this point, we're not going to change any of the projections or targets that we have yet.
Frank Mitsch - Wells Fargo Securities: Fair enough. Now, obviously year-to-date, Mr. Navikas has been a little bit slow on this, on the share purchase side given where you want to get to by the end of the year. Obviously, you are examining some other opportunities out there in terms of bolt-ons and so on. To that end, were you surprised to see the Mexican reject the Comex deal? And is that a business that might be interesting for you? Do you think you might have better luck going after Comex?
Charles E. Bunch - Chairman and CEO: We've been in a PPG Board meeting this morning. So, although I have heard those comments, I haven't seen any of the press releases. I am not really in a position to comment on what's transpired with that potential acquisition, and I wouldn't have any comment on our potential interest with that.
Operator: Ghansham Panjabi, Baird.
Ghansham Panjabi - Robert W. Baird & Co.: Can you give us a rough estimate of the weather impact on your European architectural business? I think it was down 8% for the quarter. And, do you think that some of that was delayed into the third quarter because of the weather or is it just sort of lost opportunity for the industry?
Charles E. Bunch - Chairman and CEO: Well, I don't think the weather has been good the first half of the year, wasn't good in the first quarter, it wasn't especially good in the second quarter either. Now we hope things are going to get better. Some of the weather impact in the second quarter was, we have leading positions in many of the country markets in Eastern Europe, and they were heavily impacted by the flooding. And so, I think there was some volume declines resulting in that. But I would say, to blame most of this volume decline on Eastern European flooding would be a stretch, maybe a couple of percentage points, yes, but the rest of it was overall market weakness in many of the key market areas and we're not seeing a recovery in any of the markets, except the U.K. The U.K. trade market, I think, has been slightly improved, and I think the U.K. economic recovery is maybe just a step ahead of what we’ve seen so far in Europe. So, I would say weather is sometimes a short-term factor but we have two quarters now fairly weak activity in Europe. We think we’ve stabilized and then comparable should get better. But you’ve seen our performance. I mean, the thing that’s more encouraging with our performance and our results is either despite the weak volume in the European architectural market, our teams are delivering and working really hard to execute on restructuring plans and to drive our cost and productivity. So, we feel pretty good about the overall earnings and cash performance despite the weaker top line.
Ghansham Panjabi - Robert W. Baird & Co.: And then on the marine build market, can you share your perspective on whether this market is closer to bottom, maybe from talking to your customers; that would be helpful?
Charles E. Bunch - Chairman and CEO: Well, the marine market, I think has surprised all of us with the level of weakness. When we looked at the marine new-build market in the second quarter, it was down a little over 30% in Asia, which is, as you know, the predominant region for marine new-build. So, it has been probably a decline and even by historical standards it was much sharper than anything that we’d experienced. Now, as we look at our performance during this time, I think the comparables are going to start getting a little better, even though we're still going to see negative growth numbers. So, I think the third quarter, we’re going to still see some declines, maybe not as sharp as what I've just described to you in the second quarter. We are winning our share of new business that we hope we would see by the middle of next year as they would start to rebuild from this very low level. So I would say that I'm more optimistic going forward that, I think the second quarter will be our lowest point in terms of year-over-year comparables especially for our sales. We will start to see some improvement in this rate of decline over the next couple of quarters, not nearly as dramatic as what we've seen here, especially by the time we get to the fourth quarter. We may begin then to see some improvement as we move through 2014.
Operator: John McNulty, Credit Suisse.
John McNulty - Credit Suisse: With regards to cash flow, your cash flows were up pretty significantly year-over-year despite maybe not having the cash machine which was your commodity platform. So can you walk us through some of the changes? You highlighted working capital in the prepared remarks. Can you kind of walk us through what happened there; and then also, if you think that's sustainable going forward?
David B. Navikas - SVP, Finance and CFO: John, this is David Navikas. As we look at the working capital results particularly in our coatings businesses, we certainly saw the result of some concerted effort really over the last success quarters that bore fruit here for us in Q2. Good inventory performance from a reduction perspective in all of the businesses. The improvement that we saw in working capital, both inventory and receivables was spread through all of the businesses. So I think it's a positive that this was an across-the-board kind of improvement. Good performance from a receivable collection perspective, so percent current in good shape. So, pleased to see the results here in the second quarter, and certainly, our expectations will be to keep the focus on this area and hopefully be able to retain the improvement that we seek.
John McNulty - Credit Suisse: Then, just with regard to M&A and the opportunities that you see out there, I think you're in the middle of putting Akzo into your current portfolio. How much more bandwidth do you have in terms of the size and scale of potential acquisitions out there? And then maybe just one quick follow-up, if you could comment as to whether or not you have any architectural exposure down in Mexico?
Charles E. Bunch - Chairman and CEO: Bandwidth in terms of size of capabilities financial – let's just look at the capabilities of the organization. Obviously, this is a big deal for us with Akzo North America. Here for our North American architectural business, I think we're stepping up; quite pleased. We've made a couple of acquisitions, including SigmaKalon five years ago that were even bigger in terms of size or scale. So, I think we've proven that we can take on in some of the largest businesses out there. So, there are a few – there were a fewer large top 10 kind of companies that would still be considered for-sale, in-play. So, I would say that the opportunities are still out there for the small and midsized companies. We certainly have the financial resources and the borrowing capacity to step up from there. So, I feel quite confident that we'll be able to, both in terms of the integration and the financial capacity. We certainly have capabilities to do whatever we would like to do in the coatings space. Then in Mexico, I think John, the other part of your question. We have a very good business in Mexico in our automotive and industrial businesses, smaller positions on the other coatings sides, but a very – what I would call a small position in architectural coatings in Mexico.
Operator: Laurence Alexander, Jefferies & Co.
Laurence Alexander - Jefferies & Co.: Two quick questions. First, do you expect your automotive sales to grow sequentially in Q3? And in Europe, how far out do you feel you need to look to feel comfortable that you should get back to flat to slightly positive year-over-year comparisons?
Charles E. Bunch - Chairman and CEO: Sequential sales for automotive OEMs in the third quarter are usually down. So if you look – they have in Western Europe or in Europe, they have August shutdowns which I think we’ll see again this year given the weakness of the market. Here, there is usually a July shutdown, and I think we're seeing a more traditional seasonal or third quarter pattern here in North America for the auto builds. Last year, we didn’t have as much of an effect because they were still recovering from the effects of the Japanese tsunami, and the strength of the market – that began to really recover in early last year. So, I think we’re going to have more seasonal patterns in the third quarter both here and in Europe; and that would indicate that it would be typically lower than the second quarter sales. And the second part of that was...?
Vincent J. Morales - VP, IR: What was your second question, Laurence, I'm sorry?
Laurence Alexander - Jefferies & Co.: Sorry. Just on Europe, how far out do you need to look to see positive comparisons? I mean, do you have any confidence on that?
Charles E. Bunch - Chairman and CEO: Yeah, if you'd look at – we've been probably a little surprised by the weakness of the European economy and some of the key markets. We've been very encouraged by our performance, of course, that we've been delivering on the bottom line and in cash flow. If you look in the year-over-year comparisons, I'd say to turn positive, certainty not for the balance of this year. I think we're still going to see two quarters coming up here in the second half that will continue to be negative. From a European auto-build standpoint, I'm not talking about our performance because we still feel good about that. But if you look at the overall market certainly, in the next two quarters; I think it's going to be down. Now, when you look this year, the first quarter was abnormally weak. So could you start to see more stability when we go into 2014? I certainly hope so, and that's my feeling, although when we'll see positive upturn from that? The market is still fairly pessimistic when you talk to a lot of the participants. But what happened here in North America. As the crisis rolled through the automotive industry, there was no optimism at all. In fact, many of the so-called experts were saying we'd never get to $9 million or $10 million bills again, and the whole market had forever moved away, but now you see us moving past $15 million bills, sales getting into the $16 million range here in North America. So, my hope is that even if we don't have a sharper recovery in Europe, at some point we will stabilize and see some growth and that could start happening next year. But in the near-term, I am not looking for that recovery.
Operator: John Roberts, UBS.
John Roberts - UBS: The latest deep-dive that you did with investors was on packaging coatings. And it had an okay quarter; it was low single-digit kind of everywhere. But it sounded like from that deep-dive that's a business that should be accelerating over the next year, maybe not longer than two years, and that it has a potential to get to be a high-single, low double-digit grower for a period at least due to the BPA conversion?
Charles E. Bunch - Chairman and CEO: Right, right. And we're still pleased with our packaging business unit. The best opportunities in terms of overall demand and consumption is in Asia. So, the business is still quite strong in Asia, and I think that's where you're going to see those types of demand or growth numbers. Obviously, the other opportunity that they talked about was these development, as you mentioned, of the BPA non-intent, and we're actively working on our formulations, qualifications. We're seeing the market gradually turn, and we're seeing a number of food companies, not only in baby food, but recently Coca-Cola in France, as an example, is introducing the BPA non-intent coatings in those markets and that should give us an opportunity for further growth. So, based on increasing consumption in the developing world led by Asia, but also Eastern Europe and Central Europe and the technology advances associated with BPA non-intent as an example give us optimism that we’ll continue to see good growth in the packaging coatings business.
Operator: Ivan Marcuse, KeyBanc Capital Markets.
Ivan Marcuse - KeyBanc Capital Markets: Real quick on the European architectural business. The improvement in EBITDA; how much of that was – was that all cost savings, or did you have some benefit from price cost raw materials?
Vincent J. Morales - VP, IR: Ivan, almost every single penny and more was cost savings. Volumes were down as we articulated and we came out with, what I would call discretionary cost management as well as the 2002 restructuring program savings that we are still implementing.
Ivan Marcuse - KeyBanc Capital Markets: Is the restructuring in Europe – is this almost done and are all the cost savings through there or will that continue for another couple of quarters?
Vincent J. Morales - VP, IR: If you look at our 2012 program, the 2012 program targeted $140 million of savings, where we were about $30 million away from that, so we’ll see some savings in the back half of the year still. But they are starting to diminish as we anniversary some of the actions. But we still have some savings in the back half of the year related to that original program that we initiated last year.
Ivan Marcuse - KeyBanc Capital Markets: Then a last question. You mentioned that the dealer network in the U.S. was – or the independent dealer for architectural was fairly cautious. The weather, I guess, has improved at least in the past couple of weeks. So would you expect then that that segment to be a lot stronger in the third quarter? Or is there a reason that they would just remain cautious especially with housing being as strong as it is?
Charles E. Bunch - Chairman and CEO: Well, we feel that the independent dealer channel will improve here in the third quarter from what we've been seeing. We've been, I guess, a little surprised that it hasn’t been stronger. In some markets though, the independent dealers don't participate in as much. So if you look at the store growth or the comp store growth that we talked about, you have some different markets that company-owned stores service including a new homebuilders and the like; and the independent dealers typically don't go after some of those markets where we've probably seen the strongest growth. This new home construction is up over 20%, as an example. So I think that the dealers are being somewhat cautious here. I think that the third quarter – assuming that they've been cautious on their buying patterns, we'd see a little – a better performance in the third quarter because overall, we still see the market as good. Yes, you can say some segments are little better than others. Commercial is not improving, but at a lower growth rate. So we still think that this is going to be a good year for us in architectural; and I think the dealers will participate in that improvement and I just don't think we've seen it as much. And, of course, this is true two-step distribution in the case of the dealers. So, many times they buy during window periods and then either hold less or more inventories, where in the store network you're almost direct-to-customer. So, I would – although, we don't track it directly, I think the dealers are sitting on fairly conservative inventory. So, if we have continued improvement, we should see for next quarter some improved cuts.
Operator: Nils Wallin, CLSA.
Nils Wallin - CLSA: A couple here on the marine industry. You just – curious, one, if your business in the marine segment is still generating positive cash flow. And then, also, given how much weakness we've seen over the last couple of quarters what you're seeing in terms of competitors, whether you expect any type of shake-out because of the weak market?
Charles E. Bunch - Chairman and CEO: So, the first question is the marine; results for protective – well, we have a broader business unit. It's protective and marine coatings. So, in that business unit, we're also supplying power plants, industrial complexes, infrastructure and the like. But if you just look at the marine business, it's still profitable, both on a EBIT or EBITDA and has positive cash flow. So, at this point, I would not say that we are certainly not looking to get out of the marine coatings business. This is a sharper cycle, but we're ain't going to – we plan to ride it through; and I'm not aware at this point of any of the global marine players that are planning on exiting the market. The market is much more consolidated today than it has been in the past. There are four or five major global players. At this point, I think that we're just planning to ride it out, but we have profitable sales and cash flow right now. But it is certainly off of the levels that we were seeing in 2011 or in early – first half of 2012.
Nils Wallin - CLSA: Do you think that in this process of returning to more normal that it normalizes at a lower level or it can get back to the previous peaks?
Charles E. Bunch - Chairman and CEO: Well, I would say that there was probably Mike, in some global industries, there was probably a little bit of a marine new-build bubble. So I think if you look at what was happening – if we go back to – let’s say from the second half of 2010 to the first half – through the first half of 2012, that two year period was probably, in retrospect or hindsight, maybe a little bit of a bubble. There was a view that all these ships were going to service this growing global trade, and that the market was going to be able to absorb all these new fuel-efficient ships. I think that some of that will play out in the longer-term. But I think, as we saw here in the U.S. housing market bubble and the subsequent bust, sometimes when you're going to have to endure this period and the strongest players survive, we feel that there's nothing in the market longer-term that's discouraged us. These are the types of, let's say, more challenging technologically for our customers and our chemistry problems and issues to solve for our customers. So this is a market that we belong in. I mean we paint cars, boats, planes and the tougher, the better for us. So yeah, we feel that this is market we're going to bring a lot of value to over the years; and okay, we're going to have ride out this slower end of the cycle, but long-term, we feel good about the (business).
Nils Wallin - CLSA: So just if I may, just a follow-on. Do you think you can do in marine or replicate in marine what you've done so far (in great results) in auto OEM in terms of bringing that technology to that market on the (downturn)?
Charles E. Bunch - Chairman and CEO: Yes. Well, we're continuing. Because the problems are the same. In fact, if you look at – one of the biggest issues in the marine coatings industry or the marine industry is fuel efficiency. This is a cost and an environmental issue for the large shipbuilders, or any of the owners and the – both the ship owners and the shipping company. So they are looking for solutions all the time, better products, better technology; and this is an area that we thrive in in our businesses. So we think that we can bring a lot of solutions over time. When you have a downturn that is steep, you're going to have to, I think, take corrective action. No, the reason we've been able to stay as profitable and positive from a cash flow standpoint isn't – as we've talked about in our European businesses, we've been taking cost out, getting more productive, focusing on the right customers and the right business. The Korean business has held up better than the Chinese markets because these are more specific, higher-purpose. These are also drilling ships that are going after oil and other natural resources. So the market hasn't been quite as tough as you're more commodity-oriented, just ocean-going container vessels. So, I think these are areas where longer term technology will prevail. We've got a lot of things that are going to help not only improve the painting life, but get at this key driver around the fuel efficiency for these ocean-going vessels. So, we feel good about what we're bringing in the market and we're going to ride it out and things will be better. And I hope that in subsequent calls we're going to be talking about, yeah, this thing has started to turn, but this quarter wasn't our best, certainly, in terms of market performance.
Operator: Chris Nocella, RBC Capital Markets.
Chris Nocella - RBC Capital Markets: Chuck, just as the raw material environment stabilized here, how are you seeing the pricing dynamics playing out across your coatings businesses?
Charles E. Bunch - Chairman and CEO: In terms of – we're looking for stability in terms of raw material pricing environment as well as our pricing initiative. So, right now, we see this as a stable period on both sides of the value chain.
Chris Nocella - RBC Capital Markets: Then, within order refinish, you mentioned solid growth outside of Europe. This has been somewhat of a slower growth business recently. So do you think we've hit an inflection point here?
Charles E. Bunch - Chairman and CEO: Well, the toughest market in auto refinish has been Europe. We’ve seen good growth in Asia Pacific and in particular China. That’s the fastest growing auto park in the work. We are well positioned there. We're the leading player in automotive refinish in China. So we see good growth there. And then the rest of the world outside of Europe, we feel that we have a very strong position with the new water-based technologies for automotive refinish; that’s positioned us well. And so, where there is growth in the market, we feel we are doing well. In Europe despite us leading water-based technology, things are weaker there. As I also mentioned in one of our other markets, automotive refinish typically is a two-step distribution process, and we saw this during the last, let’s call it economic crisis, three to four years ago in Europe. Even though the automotive refinish a very stable market sometimes our customers and these two-step distributors will take inventories down in the near-term and try to run tighter and get through these periods. So sometimes we can have a little stronger, a little more of a cyclical effect there than you would see in the overall market. So, Europe, yes, has been weaker. We think it will come back because the overall market is still going to be there, and outside of Europe we feel pretty good about what’s going on.
Chris Nocella - RBC Capital Markets: And are you gaining share on refinish like the OEM or is it a little bit more competitive?
Charles E. Bunch - Chairman and CEO: It's harder to track. I would say we feel good about the position that we're in. Certainly, I wouldn’t say that there has been any major share shifts, but usually it takes a while for any data to get out there. It's not – track as well or as easily as the OEM side.
Operator: Kevin Hocevar, Northcoast Research.
Kevin Hocevar - Northcoast Research: Most of my questions have been answered at this point. But I was wondering if you could comment on the silica demand. It seems like that improved a bit during the quarter. I've noticed there has been a nice uptake in tire shipment data that's come back out the last couple of months. So I'm just wondering if you're seeing a commensurate increase in the tire production side of things, and if that's what's driving the increased demand for silica?
Charles E. Bunch - Chairman and CEO: For precipitated silica, the tire market is the biggest end-use market. We think we're well positioned in the broader precipitated silica industry to serve the needs of the, let's say, let's call it the green tire movement that we see in the tire companies where they are trying to improve mileage. Precipitated silica gives improved rolling resistance. So we can actually improve the mileage of the cars. And With CAFE standards in this country or what's happening in around the world, we're seeing an uptick in demand for our products; and I think over and above the growth that we've seen in tire. So we feel good about that market and well positioned. We had a good quarter in the second quarter.
Kevin Hocevar - Northcoast Research: Then the final question. Just on the synergy targets for Akzo, just to follow-up on that. I believe in the past, you said that's $30 million to 40 million in incremental savings over, and above this $60 million of savings realized upon closing are expected to be realized in the first 12 months. Now, you say $102 million by the end of 2014. Does that $30 million to $40 million increase at all over the first 12 months of owning Akzo?
Vincent J. Morales - VP, IR: No, Kevin. If you look at the restructuring charge that we just announced, the $102 million; that's the charge, that's not the savings, first of all. The majority of that, as Dave mentioned, is earmarked to the Akzo business that we acquired in our legacy business and are embedded in that synergy number. There is a piece of that that's not – that would be – what I would call new restructuring savings. The $30 million to $40 million hasn't moved from April of this year to April of next year. We're still targeting $30 million to $40 million of cost synergies. And again, that's on top of the day one synergies.
Operator: Jeff Zekauskas, JPMorgan.
Jeffrey Zekauskas - JPMorgan: Can you tell us what the organic pro forma change in revenues was for the acquired AkzoNobel business?
Vincent J. Morales - VP, IR: Jeff, it was right around flat.
Jeffrey Zekauskas - JPMorgan: It's right around flat?
Vincent J. Morales - VP, IR: Correct.
Jeffrey Zekauskas - JPMorgan: In general, do you see the do-it-yourself market in the United States really slowing down and do-it-for-me market really accelerating in the current environment?
Charles E. Bunch - Chairman and CEO: I would say, we haven't – this trend, we haven't seen any changes. And I wouldn't say – if you look at the market, although we did well in our stores channel relative to our national account position, I wouldn't say that there is any – you wouldn't see, I think, in this shorter term any change. The one comment I would make on just your question around the Akzo North American business; the Canadian market was a little weaker in this second quarter, our first quarter of ownership for the business. They are – I think they've been challenged by the same weather conditions – it's been pretty cold up there short season. Their housing cycle is maybe a little different than ours. They don’t have the same kind of growth from this very little level. They maintain pretty stable position in terms of overall housing starts and overall construction market during the crisis. So right now, I would say the market up there is more stable. They had a rougher second quarter, I think in terms of the weather than even we had down here.
Jeffrey Zekauskas - JPMorgan: Then lastly, was there much sequential change in coatings, raw materials in the quarter?
David B. Navikas - SVP, Finance and CFO: No. Jeff, if you look – the raw material pricing has been fairly consistent. As we came into Q2, we thought it would be – it'd remain that way. It remains that way heading into Q3 as Chuck mentioned earlier.
Jeffrey Zekauskas - JPMorgan: Are there any more charges to come with Akzo after the one you're taking?
Charles E. Bunch - Chairman and CEO: No, Jeff, there are not.
Operator: William Young, ChemSpeak.
William Young - ChemSpeak: My question relates to any changes in your long-term procurement strategy for raw materials and along those lines. Where do you stand on your licensing agreement with Billions?
Charles E. Bunch - Chairman and CEO: The long-term procurement strategy for us – we've been trying – we've had centralized global purchasing of raw materials for many years, and we continue to operate that with the same type of organization and strategy. As we've seen all of this growth for our coatings businesses in Asia and Europe over the last few years, we think it's going to be a continuation of the same. The opportunity and the agreement with Billions will give us – we think as they continue their commitment to continue to grow their position in the global TiO2 industry, we think we have a good opportunity with them and with a number of our other suppliers to continue to grow with them, participate. We've talked to – we had an announcement recently about Argex, the commercial development agreement. This is the startup company in Canada, as an example. So, we continue to expand as we globalize and expanded our coatings business, expand our relationships with both the traditional and conventional sources of supply, but also new and emerging sources of supply or suppliers, and in Asia or other startup businesses around the world. So we're pretty confident that our strategy remains the same. But we're going to take advantage of some of the new opportunities that we see developing especially in the emerging region.
Operator: Duffy Fischer, Barclays Capital.
Duffy Fischer - Barclays Capital: Two quick questions. One on the optical business in Asia and China in particular. I've seen a few things written that looked like they are a little bit cryptic, but would give you the sense that maybe you don't have the perfect positioning as far as price points go there with the transition business because there is a lower quality, lower price that seems to be taking some share. Can you comment how you think you're set up for the Asia and the China market with transitions?
Charles E. Bunch - Chairman and CEO: Well, in Asia, in general, the transitions' product lines are traditionally premium products that service high-valued customers that look for the futures and benefits that you get from a transitions lens. And we do very well in Asian markets, like Australia-New Zealand, like the key city states, the Hong Kong, Shanghai, Singapore. But a big part of the market in these emerging regions is the – let's call it, the mid-tier of that pure consumer, pure mid, from kind of low to – low tier to high value-add. And so, we are trying to differentiate our offerings in transition, so that we would not just try to service the very high end of that pure-mid. And I think that we've seen progress that we've made with some of our product introductions in the region where we're trying to capture more of that growth in the mid-tier price points.
Duffy Fischer - Barclays Capital: Then just lastly, on Axalta, have you seen any difference in their behavior as they would face customers in the change of ownership?
Charles E. Bunch - Chairman and CEO: We haven't really seen it. It's been just a few months in the marketplace, and so both from an OEM standpoint or refinish, I wouldn't comment on anything that we've seen from them over the last few months. I think it's too early to make any commentary on what we’re seeing.
Operator: Dmitry Silversteyn, Longbow Research.
Dmitry Silversteyn - Longbow Research: A couple of questions if I may. When you were talking about mid-single-digit profitability for the Akzo business, was that on the EBITDA line or the EBIT line?
Vincent J. Morales - VP, IR: It was EBIT.
Dmitry Silversteyn - Longbow Research: All right, I got it. So that includes the $50 million incremental that you got from not picking out the liabilities?
Vincent J. Morales - VP, IR: It includes the $60 million day one synergies or about $15 million a quarter, plus some additional synergies, yes.
Dmitry Silversteyn - Longbow Research: Second question; your gross margin, if you look at sort of year-over-year on the Company overall, obviously, because you don’t break it down by segments, it was up about a point and your operating margin was down by about a point. So, the incremental SG&A expense as it relates to offsetting the gross margin, sort of what were the key drivers in terms of either business units or divisions that accounted for that?
Vincent J. Morales - VP, IR: Dmitry, the main driver by far was the Akzo business which is a distribution-oriented business, including the stores and other selling cost associated with the distribution business. And if you look at our traditional distribution businesses of that nature, they carry a heavier SG&A component.
Dmitry Silversteyn - Longbow Research: So, it sounds like Akzo was a contributor to the gross margin but a detractor from the operating margin?
Vincent J. Morales - VP, IR: Yeah, it has much lower – obviously, it has a much lower at this point EBIT return on sale, so it’s definitely a detractor to the corporation at this point.
Dmitry Silversteyn - Longbow Research: But I think it's interesting, if I may observe this, that the gross margin profitability does not seem to be all that owners compared to your other coating businesses or other people's coatings businesses. Is it fair to say that the margin issues that Akzo has been facing forever is related to SG&A and that's something that you guys can get your hands around fairly quickly?
David B. Navikas - SVP, Finance and CFO: No. Again, I think if you look at traditionally in architectural business, it has a heavy distribution component. It typically has a lot more SG&A which is again all the cost of the stores.
Charles E. Bunch - Chairman and CEO: But a high...
David B. Navikas - SVP, Finance and CFO: But a high gross margin.
Charles E. Bunch - Chairman and CEO: But a high gross margin.
David B. Navikas - SVP, Finance and CFO: It has store costs, it has re-promotional costs, all the stuff that goes into selling to frontline consumers.
Dmitry Silversteyn - Longbow Research: Got it. And then the final question on the automotive aftermarket. We've had several quarters – going back to the end of 2012 when this segment and this industry was identified as a problem when it came to growth, and something that impacted your performance coatings business. This quarter, you obviously talk about this being a contributor to the growth that you've seen in the quarter. The car park didn't get younger, and certainly not in North America over the last year to sort of justify increased repairs. Is it the weather being slicker out there and more collisions? I mean sort of what's – did something change in the industry or – is there some transient changes that we have to be conscious of?
Charles E. Bunch - Chairman and CEO: Well, let's be clear. The automotive refinish business has never been a problem for PPG. I would say that the growth that we're seeing this year, probably on the flipside of the – some of this weather discussion of architectural, actually, bad weather especially in the winter time or in the spring actually helps this business. So you may have some incremental business that comes from all the snow and inclement weather we had in North America. Oftentimes, what you see as the economy is improving as it is now is that people during the recession, many people were getting the cash outs from the insurance companies, but not having their cars repaired. And so, they were just putting that in their pocket and then waiting until they felt more confident in the economy or jobs. And I think that's what you're seeing here, is that, yes, the economy overall is doing better, people are more confident. Regardless of what we've seen even with all these new car builds hasn't really affected overall the average age of the car park. I think what you're seeing is some positive weather, more usage with the water base technology and the opportunities that that's giving us, and I think there's more of a propensity to repair cars that have been in collisions because of the economy overall (step).
Operator: Charles Dan, Morgan Stanley.
Charles Dan - Morgan Stanley: I just wanted to clarify all of the sort of comments you've talked about the trends for your U.S. architectural business. And it was down a bit year-over-year on a revenue basis excluding Akzo. It sounded like this quarter your expectation is for lower sequentially next quarter. Does that also translate into down on a year-over-year basis next quarter, or you – (extent I) recall, it was a particularly tough comp this quarter. So, could you just clarify that?
Vincent J. Morales - VP, IR: No, Charlie. If you look at our volume performance in Q2, we were down very modestly year-over-year, and up in stores and down in national counts, and dealers; Chuck mentioned. The dealer, we hope, has some recovery next quarter. Stores has been very consistent performer for us and we expect that to continue, and the dislocation in the national accounts has come from the product, the two price points we discussed earlier that we lost at the national accounts; and that’s not going to change in Q3.
Charles Dan - Morgan Stanley: So just putting all that together, you're still expecting revenue growth on an organic basis in the third quarter?
David B. Navikas - SVP, Finance and CFO: I think it’s a fine line of whether we're positive or negative, but we're not...it's just you know, if we could predict the future, we will tell you that. But it’s not – we were not very negative in Q2, and we would hope to be positive in Q3. But...
Operator: Richard O'Reilly, Revere and Associates.
Richard O'Reilly - Revere and Associates: Two quick questions. One is; I want to follow-up with the marine. Typically or historically, what part of your marine coatings is new-build versus maintenance refinish?
Charles E. Bunch - Chairman and CEO: 25% of the marine and coatings. The marine and protective coatings business is new-builds. If you just isolate it on marine itself, it’s about half and half between OEM, new-builds and the aftermarket.
Richard O'Reilly - Revere and Associates: Is there a mothballing of the existing ships? And if so, would they come out first before the new-builds pick-up and therefore surplus would have to be recoded quickly or early on?
Charles E. Bunch - Chairman and CEO: That’s an interesting question, because there are ships that are just parked. If you go to Singapore, you've got dozens of ships and the hardware that don’t have anything to ship right now. So they're just sitting there. But you've seen it in the commercial airline industry. If you look at the success we've seen from Boeing and Airbus, there is a lot of mothball planes, but they keep building new ones because they're more fuel-efficient, they have higher technology. So you're still going to see some of this. So, I think some of these ships that are parked or are around the world waiting for cargo to go somewhere, they may never come back in service but there will be some demand for ships that are either more fuel-efficient, easier from an maintenance standpoint or they are serving specific needs.
Richard O'Reilly - Revere and Associates: Second question, on the (indiscernible) comments for the industrial coatings product line, there was a statement that said overall results by general and industrial end-use markets remain mix. And I assume it means, you don't mean geographic, you mean customer application end markets. Can you elaborate a little more on what's negative or what's positive?
Charles E. Bunch - Chairman and CEO: Well, within the – let's call it the general industrial, or what we – we have an industrial strategic business unit and an industrial coatings segment.
Richard O'Reilly - Revere and Associates: I mean the profit line, yeah.
Charles E. Bunch - Chairman and CEO: Yeah, and within that industrial coatings business unit, we have different end use markets. So, if you look, probably the strongest component is automotive parts for PPG. That business is in industrial coatings. That's not supplying coatings to General Motors or Mercedes and the like; that's for all the parts, either under the hood, in the chassis, or some of the parts that get assembled later. That's the strongest end-use market right now in that general industrial business. The coil and extrusion coatings. That hasn't been very strong because that's been tied again to the steel industry and some of the commercial construction not as strong. Electronics; if you look within electronics, personal computers, they take a lot of coatings. That's been down. Coatings on smartphone is up, but from surface area, that hasn't been as good. Appliance coatings; good here in North America because we have a nice construction and housing recovery; poor in Europe because overall construction markets are weak. So, it's really a broad market business unit. Lots of different end use plays. So, that gives you an idea of kind of some of the puts and takes within the business by end-used market and by region.
Operator: Jeffrey Stafford, Morningstar.
Jeffrey Stafford - Morningstar, Inc.: With lower TiO2 prices, this is maybe less of a concern, but could you update us on your progress in targets to reduce TiO2 consumption in coatings?
Charles E. Bunch - Chairman and CEO: I think we've commented on that earlier, but last year we said our target was 4% to 6% productivity within our formulations of usage, not taking TiO2 out of the formulas, but using it more effectively. We said that we were in the range of 4% to 5% last year in terms of improving that productivity use of TiO2. This year, lesser target. We've gotten some of those savings last year, and we'd said, it's going to be probably closer to 3% in the range of improved usage given the same type of end-use applications in the formula, and a lot of this is also using other high value-added chemical molecules in our formulations and actually improving the overall performance of the coating even if we use less TiO2 and substitute it with some of the newer developed molecules that we've seen from some of our suppliers, and they're really doing good work here. And we're incorporating a lot of these new technologies in our formulation. So, we really feel good about the performance of our suppliers in helping us achieve these targets.
Operator: I would now like to turn the call over to Mr. Morales for closing remarks.
Vincent J. Morales - VP, IR: Again, I'd like to thank everybody for their time and interest this quarter. If you have any further questions, please feel free to contact me directly in our Investor Relations. Thank you.
Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.