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PPG Industries Inc (NYSE: PPG) This fall 2022 earnings name dated Jan. 20, 2023
Company Members:
John Bruno — Investor Relations
Timothy M. Knavish — President and Chief Govt Officer
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Analysts:
David Begleiter — Deutsche Financial institution — Analyst
Michael Sison — Wells Fargo — Analyst
Christopher Parkinson — Mizuho Securities — Analyst
Ghansham Panjabi — Robert W. Baird & Co. — Analyst
John McNulty — BMO Capital Markets — Analyst
Stephen Byrne — Financial institution of America Merrill Lynch — Analyst
Duffy Fischer — Goldman Sachs — Analyst
Laurent Favre — Exane BNP Paribas — Analyst
Kevin McCarthy — Vertical Analysis Companions LLC — Analyst
Frank Mitsch — Fermium Analysis LLC — Analyst
Josh Spector — UBS — Analyst
Vincent Andrews — Morgan Stanley — Analyst
Aleksey Yefremov — KeyBanc Capital Markets Inc. — Analyst
John Roberts — Credit score Suisse — Analyst
P.J. Juvekar — Citigroup — Analyst
Michael Leithead — Barclays — Analyst
Silke Kueck — JP Morgan Chase — Analyst
Arun Viswanathan — RBC Capital Markets — Analyst
Dan Rizzo — Jefferies — Analyst
Mike Harrison — Seaport Analysis Companions — Analyst
Jaideep Pandya — On Subject Funding Analysis LLP — Analyst
Presentation:
Operator
Good morning. My identify is Emily, and I’ll be your convention operator right now. Presently, I wish to welcome everybody to the Fourth Quarter PPG Earnings Convention Name. [Operator Instructions] Thanks. I might now like to show the convention over to John Bruno, Vice President of Investor Relations. Please go forward, sir.
John Bruno — Investor Relations
Thanks, Emily, and good morning, everybody. As soon as once more, that is John Bruno. We recognize your convention name. Becoming a member of me on the decision from PPG are Tim Knavish, President and Chief Govt Officer; and Vince Morales, Senior Vice President and Chief Monetary Officer. Our feedback relate to the monetary data launched after U.S. fairness markets closed on Thursday, January 19, 2023. Now we have posted detailed commentary and accompanying presentation slides on the Investor Heart of our web site at ppg.com.
The slides are additionally out there on the webcast website for this name offers extra help to the transient opening feedback Tim will make shortly. Following administration’s perspective on the corporate’s outcomes for the quarter, we’ll transfer to a Q&A session. Each the ready commentary and dialogue throughout this name could include forward-looking statements reflecting the corporate’s present view of future occasions and their potential impact on TV’s working and monetary efficiency. These statements contain uncertainties and dangers, which can trigger precise outcomes to vary.
The corporate is beneath no obligation to offer subsequent updates to those forward-looking statements. This presentation additionally incorporates sure non-GAAP monetary measures. The corporate has supplied, within the appendix of the presentation supplies, which can be found on our web site, reconciliations of those non-GAAP monetary measures to probably the most instantly comparable GAAP monetary measures. For added data, please discuss with PPG’s filings with the SEC.
Now let me introduce PPG’s President and CEO, Tim Knavish.
Timothy M. Knavish — President and Chief Govt Officer
Thanks, John, and good morning, everybody. I’d prefer to welcome you to our fourth quarter 2022 earnings name and my first earnings name as CEO. I’ll maintain my feedback transient, present a couple of highlights on the latest quarter, the yr 2022 and our consequence. Let me begin with the fourth quarter. Our fourth quarter gross sales of $4.2 billion have been close to the report ranges achieved in 2021 regardless of important unfavorable international foreign money translation. Gross sales have been aided by our robust U.S. automotive refinish quantity development as provide chain disruptions began to average, and our order books stay strong.
In 2022, our automotive refinish coatings enterprise delivered over 2,000 web new physique store wins as prospects proceed to worth the product expertise and industry-leading companies and capabilities that this enterprise delivers day by day, together with what we consider is the best-in-class physique store for restore product. Additionally aiding our gross sales have been report ends in our PPG Comex enterprise in Mexico as our workforce continued their robust execution and delivered one other report quarter of gross sales and earnings.
PPG Comex gross sales are actually greater than $1 billion on annual gross sales foundation, one other report yr for this enterprise. Our aerospace enterprise continued to recuperate, delivering natural gross sales development of greater than 20% on a year-over-year foundation, even with continued provide chain challenges. With an preliminary reopening in China, robust international order e-book, elevated navy associated development and PPG’s advantaged expertise merchandise we count on this enterprise to proceed to develop in 2023 and past. Our adjusted earnings per diluted share from persevering with operations have been $1.22, above the midpoint of $1.13 from the steering we supplied in October.
This included greater than 20% year-over-year section earnings enchancment pushed by promoting value realization and robust value administration. On a 2-year stack, promoting costs have been up about 19%. We achieved this section earnings enchancment regardless of the numerous and unpredictable shutdowns in China from COVID-19 that have been worse than what we had anticipated going into the quarter and these have continued into the primary quarter. In Europe, regardless of demand remaining smooth, earnings have been much like prior yr resulting from robust promoting value realization and value administration.
We additionally proceed to execute our beforehand introduced restructuring packages and realization of acquisition synergies and delivered about $20 million of financial savings within the quarter. Now a couple of feedback on the complete yr 2022; the challenges have been many, together with unprecedented value inflation, sudden geopolitical points in Europe, disruptive and unpredictable shutdowns in China, robust appreciation of the U.S. greenback and speedy escalation in rates of interest in america.
Although all of those components impacted our gross sales and margin efficiency, the PPG workforce responded to those challenges, together with quickly implementing real-time promoting value will increase that, by early 2023, will offset all cumulative value inflation incurred since early 2021. Given the tougher macro backdrop, we additionally introduced, and are shortly executing new value financial savings initiatives with explicit give attention to Europe. In 2022, we additionally made good progress on key strategic initiatives, together with strengthening our relationship with the Dwelling Depot, as evidenced by the launch of our new U.S. architectural Professional program, and profitable extra shelf house with our Glidden MAX Flex spray paint.
As well as, we have been honored to be awarded Dwelling Depot’s 2022 Total Innovation Award, which was the primary time {that a} paint provider has achieved this distinction. Our partnership with the Dwelling Depot continues to be an important alternative for important development within the coming years. The PPG workforce continued the combination of our latest acquisitions, together with well timed execution of acquisition-related synergies. These companies are all executing effectively and can present the corporate with elevated natural development prospects within the subsequent few years.
We made some smaller, however strategically necessary powder coating acquisitions, which provides the wanted manufacturing capability and vastly aids our technological capabilities on this fast-growing product class. In 2022, we as soon as once more lowered our SG&A as a % of gross sales, reducing by about 100 foundation factors, together with the supply of about $65 million in restructuring financial savings within the yr. Whereas working capital stays greater than we want, we made strong progress within the second half 2022 to decrease our inventories on a sequential foundation. We count on money conversion to return to our historic ranges in 2023 and have exited 2022 with a powerful and versatile stability sheet.
All through 2022, we took actions to bolster our ESG program, together with asserting our dedication to the science-based targets initiative, issuing our first-ever range report, and at last acquiring shareholder approval to declassify our board and take away supermajority voting necessities. In 2023, I count on our workforce to proceed their robust progress by introducing extra sustainable merchandise for our prospects and unveiling our new 2030 sustainability objectives. In abstract, for 2022, we didn’t meet our personal earnings expectations.
However by the resiliency of the worldwide PPG workforce, we did ship report gross sales of $17.7 billion and set the inspiration for a lot of accretive development initiatives. Now transferring to our outlook. As we outlined in our press launch, we count on the Q1 demand atmosphere to stay much like the fourth quarter. Nonetheless, because the yr progresses, we’re extra assured that now we have a number of catalysts that can allow PPG to drive earnings development, together with enhancements within the provide chain, which can additional average uncooked materials prices, and we count on to see this stream by our P&L extra prominently beginning within the second quarter.
Additionally, our robust place in China that can profit us because the COVID reopening progresses. With respect to Europe, we count on coatings demand stabilization starting within the second quarter, leading to greater year-over-year earnings. Within the U.S., we’ll profit from the continued restoration of the aerospace and automotive refinish companies and the present energy of our order books in each of these companies. Additionally within the U.S., our latest share beneficial properties within the architectural enterprise will assist buffer decrease demand from a softer U.S. housing market.
As a reminder, our general publicity to the U.S. new house building market is comparatively small, solely about 1% of our international revenues. As we stated final quarter, we consider our international portfolio combine will show extra resilience within the coming quarters if we expertise a broader international financial decline. As regular course of enterprise, we might be extremely targeted on controlling the controllables, together with managing our prices and optimizing working capital.
In abstract, whereas financial situations are difficult within the close to time period, I count on section margin restoration to proceed within the first quarter and stay assured in regards to the future earnings capabilities of PPG, and we actually see a path to return to prior peak working margins with alternatives to exceed it. As I start my recovering our historic margin profile, and executing on all levers to return our portfolio to mid- to high-teen share section markets.
At a excessive stage, you may count on me and the PPG workforce to raise our collaboration with our prospects, bringing them modern, sustainable and differentiated merchandise and options, which can allow our prospects to enhance their productiveness and development and permit us to enhance our personal natural development efficiency. We’ll simplify and optimize our manufacturing and provide chain efficiencies to scale back complexity and ship productiveness for each PPG and our prospects.
And we’ll protect our legacy of prudent administration of our stability sheet, persevering with to prioritize money deployment for shareholder worth creation. I plan to share extra particulars on our key initiatives because the yr progresses. In closing, I’m trying ahead to main this nice workforce, 50,000 staff world wide, as we proceed to companion with our prospects to create mutual worth. This yr marks PPG’s a hundred and fortieth yr anniversary, and I strongly consider that our greatest days are forward because of our folks, industry-leading merchandise, modern applied sciences and nice prospects.
Thanks on your continued confidence in PPG. This concludes our ready remarks. And now, Emily, would you please open the road for questions.
Questions and Solutions:
Operator
[Operator Instructions] Our first query right now comes from David Begleiter with Deutsche Financial institution. Please go forward David.
David Begleiter — Deutsche Financial institution — Analyst
Good morning. Tim, for the complete yr, consensus was round $7 per share, which can suggest a fairly large ramp up from the Q1 ranges. Is {that a} quantity that you just suppose you may — that may be achieved or get near as yr progresses?
Timothy M. Knavish — President and Chief Govt Officer
Yeah. Proper now, David, simply due to all of the uncertainty in many alternative avenues of our enterprise, we’re targeted on Q1. And clearly, Q1 has some hangover parts from This fall, notably round China. We do consider, as I stated in my feedback, that there are the buying listing of a number of potential earnings development catalyst for 2023, together with China, together with aero, together with refinish, together with Comex, EVs, THD, actually a buying listing of potential earnings catalyst, however we’ll get by this hangover of Q1 after which reassess and talk extra as we transfer ahead.
Operator
Our subsequent query comes from Michael Sison with Wells Fargo. Michael, please go forward.
Michael Sison — Wells Fargo — Analyst
Hey guys, good morning. Tim, I believe your outlook for the primary quarter is down mid-single digits for volumes. Are you able to stroll us by what the amount outlook is out of your much less cyclical markets and your extra cyclical markets to present us a gauge of type of the place these are at for the primary quarter?
Timothy M. Knavish — President and Chief Govt Officer
Positive, Mike. I imply the most important affect is, once more, shine. Sometimes, in China, March is a really large month for us, okay? And our assumption for China in Q1 is that they’ll see a second wave to a point after Chinese language New 12 months. And so our base case is that we gained’t actually see important China restoration till beginning in Q2. Moreover, on the architectural aspect, notably in Europe, we’d usually, in Q1, see a reasonably strong top off forward of paint season.
And due to the whole lot that’s occurring in Europe that we see some buildup, however not almost what we’d see in a standard yr. After which lastly, one in all our top-performing companies, PPG Comex, sometimes has a really robust This fall, and it had an excellent stronger-than-expected This fall in 2022. So there’s somewhat little bit of simply timing there, despite the fact that we count on one other nice yr from that enterprise, there’s timing situation in Q1. So these are the three important components, I might say.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Mike, that is Vince. Simply on the opposite companies. We’re not seeing any tone change within the companies sequentially once more, good robust tempo of restoration in aerospace, a strong, constant development in Refinish, auto OEM, constant — usually constant quarter-over-quarter, beginning to recuperate in Europe. So once more, we’re not seeing any important modifications in a few of the different key companies both.
Operator
Our subsequent query comes from the road of Christopher Parkinson with Mizuho. Christopher, please go forward.
Christopher Parkinson — Mizuho Securities — Analyst
Nice. Thanks a lot. Only a actual fast query on pricing. Are you able to simply touch upon the present pricing atmosphere simply given the macro motion in, let’s say, uncooked supplies after which additionally a number of administration modifications throughout the sector. Are you continue to seeing the flexibility to maintain value all year long? Simply any commentary could be extremely useful.
Timothy M. Knavish — President and Chief Govt Officer
Yeah, positive. Thanks for the query, Chris. You noticed on the print that we put up 11% for This fall, 19% on a two-year stack, sequentially it was 18% on a 2-year stack in Q3. So we nonetheless have pricing momentum. We may have extra value in Q1 focused by enterprise. We’ve bought some carryover affect in Q1 as effectively. As for what’s occurring on the market on the planet in addition to PPG, all of the coatings corporations are going through the identical inflation inputs that we’re, be it uncooked supplies, which we focus quite a bit on however there’s additionally important inflation exterior of uncooked supplies that we’re all experiencing. So we see a continuation of optimistic pricing as we enter the yr. And past that, plenty of it relies upon what occurs on the inflationary atmosphere, however that’s our view at this level within the yr, Chris.
Operator
The subsequent query right now comes from Ghansham Panjabi with Baird. Please go forward.
Ghansham Panjabi — Robert W. Baird & Co. — Analyst
Hey guys, good morning. Because it pertains to the U.S. architectural, I imply, clearly, there’s bifurcation to date between your self and a few of the skilled markets, how do you form of see that evolving over time because the yr unfolds? After which for European architectural, simply given the extent of the amount weak point within the markets, are you able to simply give us a way as to how aggressive the pricing backdrop is within the {industry}, simply given the amount weak point? Thanks.
Timothy M. Knavish — President and Chief Govt Officer
Positive. Thanks, Ghansham. So let me begin with the U.S. atmosphere. I’ll begin at a excessive stage from a macro standpoint. Clearly, DIY is down partly due to what’s occurring with shopper confidence, but in addition a little bit of a holdover from the COVID piece of DIY. And clearly, new housing building happening, once more, just one% of our gross sales. However these two segments are down. Happily, for us, we’re a lot stronger in business and upkeep. And there, we nonetheless see backlogs with our prospects.
I believe you recognize we do a survey each quarter with our skilled prospects right here in america. And their backlogs are nonetheless floating in that 12- to 13-week vary. So we nonetheless see some good demand there. After which as we transfer ahead, we count on to proceed to see development from our Dwelling Depot Professional program transferring ahead. Now going over to Europe, the amount began to essentially deteriorate after the invasion final Q1, and was down double digits all through all of 2022. The skilled painter enterprise down not almost as way more within the single digits.
However as we enter 2022, we’ll see notably for Q1 — I’m sorry, 2023, Q1, we’ve bought somewhat little bit of a comp situation the place we’re nonetheless comping a part of the quarter to the pre-war period. However then as soon as we get to Q2, we begin to have, frankly, some optimistic comps as a result of our whole enterprise in Q2 in Europe was down about 10% double digits, low double digits. So we do see it kind of type of bouncing off the underside, if you’ll, as we finish Q1 after which comping higher as we get into Q2.
Operator
Our subsequent query comes from John McNulty with BMO. John, please go forward.
John McNulty — BMO Capital Markets — Analyst
Yeah. Good morning. Thanks for taking my questions. Tim, you spoke in your ready remarks in regards to the goal of mid- to excessive teenagers margins for PPG going ahead. Is it a perform of simply uncooked supplies getting again to regular and type of having that catch-up type of lastly been made? Or do you see plenty of manufacturing effectivity enhancements which will have uncovered themselves by a few of the provide chain issues, what have you ever? And in that case, if it’s the latter, are you able to assist us to know what a few of these levers is perhaps?
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Hey John, that is Vince. I’m going to start out, and I’ll let Tim add some shade right here, however actually three levers. One, we’ve been chasing, which is the uncooked materials value, or whole inflation value hole, which, once more, we expect might be type of on that in early 2023. We name it weeks not uneven months. However the second which I believe is necessary, is, and also you hit on it, John, we haven’t had a powerful manufacturing couple of years right here resulting from disruptions, resulting from provide disruptions, resulting from buyer disruptions, COVID disruptions, resulting from churn within the workforce that many corporations are seeing. So we do — that’s not a big quantity for us from a producing perspective. However the third, which is essential, although, is we’re nonetheless down about 10% versus pre-COVID ranges when it comes to volumes unfold all through our portfolio. So these are the three large levers and Tim can add shade right here.
Timothy M. Knavish — President and Chief Govt Officer
Yeah, you actually hit the Section 3, however notably to the amount, we’ve bought aero nonetheless down considerably. We’ve bought auto, auto has been at recession ranges for 3 years now. There’s pent-up demand throughout the planet for automobiles. Refinish remains to be down 10%-ish from 2019. Along with what Vince talked about, now we have accomplished a superb little bit of value out throughout this era as effectively and restructuring. So we’ll get levered from that. We’re not fully completed with our acquisition synergy realization. So, as I stated, I used the time period buying listing. We’ve bought a buying listing of things which might be to contribute to our margin price.
Operator
Our subsequent query comes from Stephen Byrne with Financial institution of America Merrill Lynch. Please go forward, Stephen.
Stephen Byrne — Financial institution of America Merrill Lynch — Analyst
Thanks. Tim, you made a remark a couple of minutes in the past about inflation exterior of raws. And I simply needed to drill into this near-term outlook of yours of low-single-digit inflation within the first quarter. Is {that a} touch upon broadly value of products or is it simply raws? And are you additionally seeing it in labor and freight and so forth?
And possibly simply on the uncooked aspect of that, for first quarter, when would you say that flowing by value of products relies on? What month could be the midpoint of your purchases that will stream by value of products within the first quarter versus your purchases of these raws right now, what would you say that will mirror when it comes to possibly second quarter uncooked materials prices?
Timothy M. Knavish — President and Chief Govt Officer
Positive, Steve. I believe the numbers you have been quoting initially of your query have been uncooked materials, okay? So This fall, we have been up mid-single digits year-over-year, down low single digits sequentially. In Q1, we count on to see modest down year-over-year and one other sequential step down. The fact of flow-through is we’re actually flowing by stock that now we have available now just about. And that can stream by all through Q1. So we’re anticipating the optimistic advantages of that on the P&L to essentially not present itself considerably till Q2. Okay. After which on the opposite inflation, that’s going to be, a minimum of for now, that’s going to be fairly fixed as we transfer from Q1 into Q2 round labor inflation and a few of the different installations.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah. And, Steve, simply going again to what Tim stated earlier within the name. That’s why we’re doing focused pricing in — throughout our portfolio to compensate for this different inflation that’s going to be greater year-over-year, primarily labor. I’m not seeing as a lot freight as you identified. It’s not been an inflationary issue the final couple of quarters.
Operator
Our subsequent query comes from Duffy Fischer of Goldman Sachs. Please go forward, Duffy.
Duffy Fischer — Goldman Sachs — Analyst
Yeah, good morning, guys. Query simply round value. In order you ended final yr, when you simply anniversary the worth that you just had at that time how a lot would that transfer up value this yr simply from an accounting standpoint as we roll by? And two, I’d think about you’ve gone out with plenty of your value will increase already. So when you common that throughout the corporate, type of what’s the ask on value that you just’ve despatched out to prospects to date this yr?
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah. Duffy, I’ll deal with the primary a part of the query. The carryover pricing — we do have each quarter, our value off of our gross sales base to be able to do the mathematics. You provide you with a number of a whole lot of tens of millions of {dollars} of value carryover in 2023 and from our 2022 pricing initiatives. Once more, when you simply do the mathematics, you may simply provide you with that. It’s actually north of $300 million and might be carried over.
Timothy M. Knavish — President and Chief Govt Officer
Yeah. And Duffy, thanks for the query. It’s Tim right here. On the brand new pricing, if you’ll, it is going to be extra focused simply based mostly on the place every of the segments are on their catch-up and on offsetting whole inflation and new inflation. We’ve already gone out for extra value in a few companies. We’re having discussions with prospects in a couple of different companies, and we’ll desire to have these discussions with the purchasers first and — however we’ll have extra visibility on that as we transfer ahead. However we may have optimistic value if you web all of that right here as we transfer by ’23.
Operator
Our subsequent query comes from Laurent Favre with Exane BNP Paribas. Please go forward.
Laurent Favre — Exane BNP Paribas — Analyst
Sure, good morning. Tim, in your focus areas, you talked about simplification and optimization of provide chain and manufacturing. I used to be questioning when you might speak somewhat bit about this and possibly dimension the chance on prices and dealing capital, and different areas the place you suppose it’s essential to rationalize the footprint based mostly on a structurally decrease demand atmosphere, as an example, in Europe? Thanks.
Timothy M. Knavish — President and Chief Govt Officer
Yeah. Thanks, Laurent. Should you have a look at our journey during the last decade and half, we’ve bought plenty of acquisitions, we’ve acquired plenty of manufacturing [Indecipherable]. We’ve additionally acquired plenty of product portfolios, and we’ve captured plenty of synergies alongside the way in which. As we have a look at the place we’re right now and a few of the issues we’ve realized by a few of the provide shortages, and so forth, of the disaster, we consider there’s pretty important alternatives for us to essentially simplify, not solely our footprint, however our processes, simplify and standardize a few of what we’ve acquired, simplify a few of the portfolios that we’ve acquired. So we do consider that there’s some important upside for us there as we transfer ahead. And as you may think about, that’s not as fast a realization as, say, procurement synergies if you first shut the deal, however we really feel fairly assured that within the medium and long run that we will ship worth there.
Operator
Our subsequent query comes from Kevin McCarthy with Vertical Analysis Companions. Please go forward, Kevin.
Kevin McCarthy — Vertical Analysis Companions LLC — Analyst
Sure, good morning. Tim, a query in your U.S. architectural enterprise. If we have a look at many of the macro indicators for housing and building, they’re slowing markedly in latest months. Then again, you might have some company-specific tailwinds within the type of a ramp of your Professional paint program at Dwelling Depot. I believe you additionally referenced elevated shelf house at Glidden. So are you able to body that out when it comes to what you’re anticipating possibly volumetrically as 2023 progresses in that vertical?
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah, Kevin, that is Vince. Let me simply begin on the macro. Once more, what we’re seeing, which I believe has been fairly [Indecipherable], is new housing begins and main indicators, actually pointing down. We actually must bifurcate that. Single-family housing begins are important, considerably down. Multifamily, we count on to show down, and so they’re beginning to prove, however there’s nonetheless going to be development. Multifamily completions, once more, paints on the finish of the cycle right here. There’s nonetheless completions that can carry us effectively into the yr. Tim talked about earlier on the business aspect, business new construct, once more, for the — actually for the primary half of the yr must be some fixed, if not longer. After which business repaint is strong proper now. And there’s a backlog on that. So these are the macro indicators and we do have some PPG-specific gadgets that Tim can discuss.
Timothy M. Knavish — President and Chief Govt Officer
Yeah Kevin, the PPG specifics, you recognize effectively in regards to the THD [Phonetic] Dwelling Depot Professional program, and we count on double digits from that program once more this yr after robust double digits final yr. The opposite one, we’ve bought a pleasant extra retail win. Our buyer goes to announce it first, however you must hear — in weeks probably months right here of what that’s, that can assist offset a few of the different issues that Vince talked about. After which the spray paint win for us with that innovation award on the Dwelling Depot is — we’re enthusiastic about alternative to not solely leverage that particular product, however develop that providing both additional. However if you put all of it collectively, Kevin, we expect net-net for volumes in that house to be down. However after all, gross sales to be up with the worth offsetting the distinction.
Operator
Our subsequent query comes from Frank Mitsch with Fermium Analysis. Please go forward, Frank.
Frank Mitsch — Fermium Analysis LLC — Analyst
Thanks and good morning all. First, I wish to lengthen my sympathies to the PPG’s household on the passing of Invoice Hernandez. He actually was an important, nice man. Hey Tim, I recognize your reply on the complete yr EPS query, for positive, given all of the uncertainties. However you already indicated that you just count on European earnings might be up year-over-year within the second quarter. And also you additionally talked about that your people on the bottom in China expect China to essentially decide up come April. And so I’m questioning, is a part of your calculus that we are going to seemingly see greater year-over-year EPS within the second quarter?
Timothy M. Knavish — President and Chief Govt Officer
Nicely, once more, Frank, initially, thanks for the decision out to Invoice Hernando, a cherished PPG partnered right here for a few years. And only a world-class CFO and nice human being and been a tragic and sudden loss this previous weekend. So thanks for calling that out. Frank, on the finish of the day, the uncertainty at this level with what’s occurring with China and when and what’s occurring with Europe and to what diploma, and what’s occurring to uncooked materials pricing and the specificity of that uncooked materials pricing, as you recognize, can change our earnings profile pretty considerably. We’re simply not ready proper now to place out an announcement on Q2 EPS. That stated, as I stated earlier, I consider we’ve bought a hangover in Q1, however plenty of these, let’s name them, earnings levers begin to come due in Q2.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah, Frank, that is Vince. We do give this up. Should you have a look at our profile of nations, China is one in all our largest nations for positive. So there’s nonetheless uncertainty there as we identified, and Tim identified within the opening remarks in regards to the timing of the opening. Proper now, we actually hope March aerospace a powerful month. Positively April too arduous to foretell April, which is Q2 is often an excellent quarter in China so no place at this level to offer any actual line on that at this level.
Operator
Our subsequent query comes from Josh Spector of UBS. Please go forward, Josh.
Josh Spector — UBS — Analyst
Yeah, hello. Thanks for taking my query. I simply have a few follow-ups right here. First, do you suppose you may obtain the low finish of your margin targets this yr in 2023 on common? And second, when you might remark in your skill to carry costs throughout the companies as we transfer by this yr? And any feedback there versus why this is perhaps totally different versus prior cycles?
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah. Josh, one lever to assist us enhance earnings, once more, we’re not attempting to present full yr steering on margins, and that’s even tougher go than prime line. So we’ll defer that until somewhat bit later into the yr. Your query on pricing, I’m going to let Tim reply it.
Timothy M. Knavish — President and Chief Govt Officer
Yeah, Josh, I’m assured in our workforce’s skill to carry value much like prior cycles. And with this cycle, probably much more due to different inflation that’s extra persistent than we’ve had in different cycles. In order that’s — we’re assured in that.
Operator
Our subsequent query comes from Vincent Andrews of Morgan Stanley. Please go forward, Vincent.
Vincent Andrews — Morgan Stanley — Analyst
Thanks. I believe you commented within the ready remarks that you just’ve bought auto builds flat in 1Q, and I believe the consultants are nonetheless calling for it to be up about 2.25%. So is that simply one thing you’re seeing in your personal e-book? Or are you anticipating these advisor numbers to return decrease? And simply, along with that, might you discuss the way you anticipate the combo of auto builds this yr? Is there going to be any totally different than final yr? And would that be a plus or minus for you?
Timothy M. Knavish — President and Chief Govt Officer
Yeah. Thanks, Vincent. Nicely, initially, traditionally — I don’t wish to brag, however traditionally, we’ve truly nailed it fairly effectively in comparison with a few of the exterior consultants on the builds as a result of we bought so many individuals within the vegetation day by day. Now we have visibility to working schedules, and we speak to these people. So the distinction for us in Q1 particularly is China as a result of our base case is that there might be, to a point, a second wave after Chinese language New 12 months of infections, and we noticed what that did on the primary wave to meeting vegetation and different suppliers.
In order that’s our base case, and which will clarify the distinction between us and a few of the consulting homes on the market. However past that, we’re anticipating modest development for the yr, low single digits. And that’s an space the place there doubtlessly might be upside, however our base case is low single digits. Yeah, simply to present you some examples particularly of what occurred on the bottom in China, and why we’re a bit cautious on the post-Chinese language New 12 months. When issues opened up in mid China — I’m sorry, mid-December in China, we’ve bought 19 PPG manufacturing websites throughout the nation.
And we went from close to zero absenteeism in a short time to above 50% absenteeism throughout that entire community. And that has returned very quickly to close zero in a interval of about 2.5 to three weeks. And we noticed that very same in a few of our different suppliers, meeting vegetation, you identify it. So we’ve lived it, we’ve seen the information, and we consider that as folks journey to the households — there’s extra journey than the final three years throughout China for Chinese language New 12 months. As they journey to a few of the extra distant villages to go to their households in return, we do consider there might be a brief however acute second wave. And in order that’s why we’re a bit extra cautious. And as Vince talked about, March is a large month usually for our China enterprise.
Operator
Our subsequent query comes from Aleksey Yefremov with KeyBanc. Please go forward, Aleksey.
Aleksey Yefremov — KeyBanc Capital Markets Inc. — Analyst
Thanks. Good morning, everybody. I simply needed to make clear your uncooked supplies commentary from earlier. It seems like you’re at present destocking form of earlier uncooked supplies purchases and can start to buy extra maybe within the second quarter so there might be extra of a step down in the fee. Is that the precise manner to consider it?
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah, Aleksey, let me present some — possibly some readability right here. So we did see, as Tim talked about, some modest sequential uncooked materials deflation Q3 to This fall. We count on a — we count on an additional incremental deflation in This fall to Q1. We have been nonetheless up This fall year-over-year. And now we have to work that deflation by our stock, which can take us seemingly by the primary quarter earlier than we see that affect on our P&L. And in order that’s, I believe, what we’re attempting to articulate. We do have — as Tim talked about, we do have efforts underway to optimize our working capital, primarily our stock.
We ended July or June with seemingly excessive stock ranges. We labored within the second half of the yr to work these down, and we’re nonetheless working these down as we get into the primary quarter of 2023. So that they’re nonetheless above what we wish to be our goal vary. So we’re nonetheless going by numerous destocking relying on the area, relying on the product. So we may have crimped uncooked materials purchases in Q1 and certain some crimped uncooked materials purchases in Q2.
Operator
Our subsequent query comes from John Roberts of Credit score Suisse. Please go forward, John.
John Roberts — Credit score Suisse — Analyst
Thanks. Good morning, Tim, Vince and John. Simply needed to ask a query about auto refinish. You gained 2,000 new physique outlets in 2022. Was that concentrated anyplace regionally? Or was there one thing else widespread to these outlets that switched? And if you discuss 15% greater productiveness, is that relative to the prior provider to these outlets? Or how are you defining that because you’re main rivals additionally speaking about having productiveness greater than the competitors?
Timothy M. Knavish — President and Chief Govt Officer
Yeah. Thanks, John. To your first query, our web wins on physique outlets are optimistic in all the foremost areas, U.S., Canada, Europe, Australia, New Zealand and China. It’s simply proportion to our enterprise that the overwhelming majority of these are within the U.S. and Europe. Relative to the entire productiveness query, the way in which we have a look at it’s change is barely as robust as its weakest hyperlink. And so each hyperlink on the refinish physique store throughput must be robust with a view to actually drive what’s most necessary to the physique store proprietor, and that’s what they name key to key time.
From the time you are taking the car proprietor’s keys till the time you hand these keys again to the car proprietor. That’s the one and solely metric that’s [Indecipherable]. So in case you are incrementally sooner in a kind of steps, however slower in a number of others, such that your key to key time is 15% decrease, than you’re merely not as productive within the eyes of that — in that physique store over. And so we give attention to that end-to-end with issues just like the digitized shade match, our Lake digital system that basically encompasses the entire physique store, the visualizer, optimized mixing to enhance pace, eradicate waste.
And one other factor that’s actually necessary to the physique store homeowners proper now that PPG’s worth proposition delivers and a few of our rivals don’t, is you’re truly simplifying a few of these steps with issues like moon stroll and the visualizer in order that the constrained taste of the skilled painter doesn’t all the time must be the one to try this. You open it as much as different labor that may try this and that provides extra productiveness of the physique outlets. So once more, a very powerful factor is that key to key time, and that’s the place now we have the 15% benefit.
Operator
Our subsequent query comes from P.J. Juvekar with Citigroup. Please go forward, P.J.
P.J. Juvekar — Citigroup — Analyst
Sure, good morning. Tim, clearly, the housing market is slowing down, whether or not you have a look at new houses or current house gross sales. Have you ever seen a slowdown within the contractor enterprise? The contractor enterprise was strong. Final couple of summers. That they had an enormous backlog that they have been working from COVID. As that backlog is labored down, do you count on some slowing within the contractor enterprise?
Timothy M. Knavish — President and Chief Govt Officer
Yeah, P.J. Yeah, now we have already seen a slowdown in contractors which might be primarily targeted on new housing. That’s a brutal actuality that all of us must face. However once more, that’s a small portion of our enterprise. Our backlogs for — we’re robust, which is business and upkeep, actually have moved solely incrementally, 13 weeks common backlog in Q3 to 12 weeks common backlog in This fall. In order that’s what’s been the margin of error of our survey.
In order that’s holding up significantly better than the brand new construct. I consider a part of that, if you consider plenty of business work and upkeep work and lightweight industrial work, plenty of that work was close to zero throughout COVID, whereas the DIY and res repaint was offsetting it. So there’s nonetheless plenty of pent-up demand there. So I don’t — as I stated earlier, the full quantity remains to be going to be incrementally down. So I don’t wish to oversell that. However that’s why a few of our Professional enterprise is holding up higher.
Operator
Our subsequent query comes from Michael Leithead of Barclays. Please go forward, Michael.
Michael Leithead — Barclays — Analyst
Nice. Thanks. Good morning guys. I simply had a little bit of a follow-up on the uncooked materials basket. Are you able to simply assist us with how you consider that evolving broadly over the course of this yr? I suppose, with 1Q demand being fairly benign or restock quantity was down 5%-ish or so, why do you suppose enter prices aren’t coming down sooner? And if China does recuperate in 2Q and past fairly shortly, how do you consider what that does to your uncooked materials prices?
Timothy M. Knavish — President and Chief Govt Officer
So, Mike, I’ll begin, and Vince fill in some shade. I believe there have been some precise synthetic demand within the second half of that has possibly delayed a few of the primary supply-demand economics. Since you’ll recall that for many of ’21 and the primary half of ’22, uncooked materials availability was our number one situation and plenty of our coatings friends’ number one situation. In order that availability improves, all of us stocked up and bought security inventory and, on the identical time, demand began to break down. So if issues have been type in — once I say collapse, I imply, notably on the DIY and eco aspect, however large driver to the general uncooked materials change. So I believe plenty of corporations, and also you’ve seen that in what corporations have stated, ended the yr with extra stock than they want. So there was a little bit of synthetic demand that delayed what could be a standard provide financial institution curve.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah, Mike, let me simply add some shade right here. In order we enter 2023, once more, we’re destocking. We all know from a public commentary, plenty of our friends have extra stock and are destocking. I do suppose there’s the sort of battle with the provider base, sometimes, Q1 and Q2 are peak quantity orders for coatings uncooked materials purchases. I don’t suppose that’s going to materialize in the identical method this yr. So we’ll have a decrease purchase — PPG may have a decrease by in Q1. Now we have suppliers in just about each week or day by day for the previous couple of weeks, indicating to us to have extra provide to present to us. And so we’re going to maximise that to the good thing about our shareholders. And we’ll negotiate our Q1 and Q2 pricing accordingly. We do consider, as we stated for the final couple of quarters, there’s ample provide in our provide base.
Operator
Our subsequent query comes from Silke Kueck with J.P. Morgan Chase. Please go forward.
Silke Kueck — JP Morgan Chase — Analyst
Good morning. That is Silke for Jeff. I used to be questioning whether or not you may focus on your volumes and your value and your U.S. architectural shops? And secondly, I used to be questioning whether or not you may discuss what’s occurring within the packaging enterprise?
Timothy M. Knavish — President and Chief Govt Officer
Positive. So the shops pricing, we’ve raised value there a number of occasions, and we held that value all year long. And 2023, it’ll rely on what occurs from an inflation standpoint, however that’s one of many companies the place we moved pretty shortly to maintain up with value inputs. On packaging, we did have robust margin restoration in that enterprise all through ’22, and we count on that to proceed in 2023. We do see some softness there in pockets world wide, pushed by — in China, it’s the lockdown.
And in Europe, it’s simply shopper confidence in beverage spending. So now we have seen some softness in quantity, however robust margin restoration. And we additionally proceed to transform to our [Indecipherable] Professional BPA-free content material materials, and we’ve had some good wins in that beverage house, that might be launched as we transfer by this yr. However general, at a excessive stage, good margin restoration, some softness in demand world wide.
Operator
Our subsequent query comes from Arun Viswanathan with RBC. Please go forward, Arun.
Arun Viswanathan — RBC Capital Markets — Analyst
Hey, thanks for taking my query. Good morning. I suppose my query is about some framework you’ve supplied up to now. If we return possibly a yr, 1.5 years in the past, you have been discussing possibly $9 of earnings for 2023. Do you see that as nonetheless possibly a risk a few years out? That might suggest one other $400 million, $500 million of EBIT on prime of the place you’re. So what’s the framework to get again there? Is it type of that top teenagers EBIT margin and possibly the restoration of the amount? Or would you want greater than that to get again? And is that also possibly once more out there in a few years’ time?
Timothy M. Knavish — President and Chief Govt Officer
Yeah. Arun, I’ve stated earlier than, I consider that the $9 EPS is when, not if, and I stand behind that. And that’s as a result of the basics are there. Now we have portfolio that has earnings energy that has but to be launched. And I gained’t offer you my total 10-point plan that can get us there, however you’ve nonetheless bought restoration in a few of our higher companies, aerospace, auto, refinish. Let me discuss auto for a second with out going too far off subject right here.
However when you take a 6-year run price of world builds earlier than COVID, in comparison with the — I’m sorry, 2021, ’22, there’s 40 million fewer automobiles that have been constructed throughout that 3-year interval in comparison with the 6-year earlier than. So everyone has their guess as to how a lot of that 40 million might be made up over time, nevertheless it’s not zero. And in order that enterprise has plenty of quantity restoration to go. We’ve bought the worth/value momentum. You’ve heard about our restructuring, acquisition synergies, a few of the expertise innovation, productiveness, sustainable merchandise that can drive share development. After which simply broader quantity restoration, we really feel assured that the $9 is a when not but.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
And simply Arun, simply a few feedback — at somewhat extra close to time period. So when you have a look at 2022, now we have to remind — Tim talked about this earlier, nevertheless it’s a superb reminder. We actually noticed Europe fall actually the again half of March. So we’re going to return up towards some recession kind volumes right here in a few weeks. We remind everyone that, in Q2, China was shut down, industrial-wise, for nearly two months. So once more, we don’t suppose 2022 was consultant in China of a standard — even a compressed run price on GDP development. So these two exterior of aerospace, exterior of refinish, we expect have some alternatives to contribute. And once more, as Tim talked about earlier, we count on excellent leverage above historic common leverage as volumes return in any enterprise.
Operator
Our subsequent query comes from Laurence Alexander with Jefferies. Please go forward, Laurence.
Dan Rizzo — Jefferies — Analyst
Good morning. It’s Dan Rizzo on for Lawrence. Thanks for becoming me in. Simply when it comes to the backlog you talked about, I believe you stated business backlog was 13 to 14 weeks. After which I believe within the feedback, you stated a $200 million backlog in aerospace. I used to be only for comparability functions. How — what does that imply like versus what, I suppose, traditionally it’s been?
Timothy M. Knavish — President and Chief Govt Officer
Yeah, Dan, traditionally, that 12-, 13-week for U.S. propaners is definitely nonetheless excessive. So that can offset a few of the unfavorable quantity in a few of the different segments. I can let you know that in my brief 35.5 years of with PPG, I don’t bear in mind the aerospace backlogs ever being is powerful. And that can take us — that’s pent-up demand for the foreseeable future. Refinish, our refinish backlogs are nonetheless, notably right here within the U.S., in all probability 5x what they have been pre-COVID. And it’s not solely a matter of us getting product out or getting uncooked supplies in, our refinish prospects backlogs are excessive. I hope you haven’t had any minor [Indecipherable], however you probably have and also you’ve taken a automotive to a physique store, they’re more likely to let you know it’s six to eight weeks earlier than you’re going to get that automotive serviced and brought care of. So the backlogs throughout all of these areas are excessive, and in some circumstances, traditionally excessive.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Yeah. I’ll reply the colour, Dan, to the aerospace figures right here. So we stated earlier than, aerospace is circa $1 billion enterprise for us. This $200 million backlog is often a small fraction of that. So that is nearly one other two months of exercise. If we will get it accomplished this yr, we’re nonetheless going through some provide challenges which might be governing what we will do in a selected month or quarter, however it’s a important backlog relative to historic phrases.
Timothy M. Knavish — President and Chief Govt Officer
Yeah. And I’m going to seize that again another or another remark. The demand in aerospace is definitely rising as we progress by the months and quarters. So that you’ve bought type of the underlying demand is rising, which signifies that $200 million backlog goes to be there even longer. And recall that China, worldwide journey solely opened on January 8, in order that’s going to be one other stimulus for aerospace demand.
Operator
Our subsequent query comes from Mike Harrison of Seaport Analysis Companions. Please go forward, Mike.
Mike Harrison — Seaport Analysis Companions — Analyst
Hello, good morning. Within the auto OEM enterprise, a query on electrical autos that hit 10% of world automotive gross sales final yr. I hoped that you could possibly give us an replace on a few of the key merchandise that you just’re offering for electrical autos. Any latest wins or different metrics you may share on that portion of the auto OEM enterprise?
Timothy M. Knavish — President and Chief Govt Officer
Yeah, Mike, we’re actually enthusiastic about EV as a result of we’re profitable the place the EVs are profitable, okay? We’re profitable the place the EVs are gaining probably the most and that’s China. You in all probability noticed the journal article right here not that way back, it’s one thing like 65% or so of the EVs bought final yr have been in China, and that’s the place we’re having probably the most success. In actual fact, we’re rising considerably with the biggest EV producer in China. The best way we’re approaching is, it’s not solely about new applied sciences, it’s about selecting the winners on the EVs and promoting, let’s say, extra typical corrosion safety and beautification merchandise to these prospects. So it’s a mixed effort of promoting our new and differentiated merchandise like our battery hearth safety, and our dielectric coatings merchandise to these prospects, but in addition focusing on and profitable with the EV winners out there.
Operator
Our closing query right now comes from Jaideep Pandya with On Subject Analysis. Please go forward.
Jaideep Pandya — On Subject Funding Analysis LLP — Analyst
[Technical Issues] partly due to the loopy uncooked materials inflation you’ve seen. Now as uncooked supplies tail off, are you not getting pushed again out of your prospects if you’re attempting to do these focused pricing, particularly in a requirement atmosphere, which has a minimum of modified and has slowed? That’s my first query. And the second query actually is on protecting. May you simply inform us like what’s the backlog in marine and protecting nowadays?
Timothy M. Knavish — President and Chief Govt Officer
Jaideep, I’m sorry, the start of your first query type of — I apologize, but when possibly you could possibly repeat your first query for us, please.
Jaideep Pandya — On Subject Funding Analysis LLP — Analyst
Yeah, positive. Positive. So my first query is simply on the pricing.
Timothy M. Knavish — President and Chief Govt Officer
I get the primary query.
Jaideep Pandya — On Subject Funding Analysis LLP — Analyst
Howdy. Yeah. It’s simply on.
Timothy M. Knavish — President and Chief Govt Officer
Yeah. So, Jaideep, I’ll take it after which Vic, you may soar in. On pricing, you bought to keep in mind that the pricing that we’ve achieved during the last couple of years was to offset what’s occurred in inflation within the final couple of years. And our prospects have visibility to what’s occurred to our web margins — and they also have optics on the place we’re on a margin restoration standpoint and so they additionally know when now we have these discussions with them that we’re not again to peak margins. And so it’s not like we’re going, usually, above and past that. In order we transfer ahead, we’ll proceed to be aggressive, and we’ll proceed to cost to offset non-raw materials inflation.
Vincent J. Morales — Senior Vice President and Chief Monetary Officer
Earlier than Tim solutions the protecting query, Jaideep, I believe now we have discussions with our prospects and nearly each enterprise. And so they need us to be a wholesome provider that continues to innovate and so they perceive that and once more, receives a commission a good value for modern expertise that sometimes helps them. And we’re coming right into a time period, given the inflation in base and wage the place our prospects actually worth practical attributes of our coatings merchandise. And once more, they’re pushing us — not a lot on merchandise, they’re pushing us to assist them with their productiveness proper now, which is a a lot larger value pull for them, value alternative for them. than the worth on coatings. So once more, we’re in plenty of discussions with our prospects about enhance their productiveness, which once more is a key attribute for them.
Timothy M. Knavish — President and Chief Govt Officer
Yeah. In your protecting query, our protecting and marine enterprise truly had a really robust yr final yr. Despite the fact that there was quantity degradation in This fall, that quantity degradation was China as a result of whether or not it’s marine new builds or giant petrochemical protecting initiatives, plenty of these are accomplished in China. So that can — a few of that can observe the China closing after which reopening curve. However past that, a few issues are occurring in protecting. There’s important funding in LNG, all points of LNG, and that’s that space makes use of plenty of our advantaged protecting merchandise.
There’s an infrastructure funding actually coming within the U.S. and different nations that results in future development for the protecting enterprise. After which, lastly, on a PPG-specific protecting alternative, we had a implausible distribution community in Mexico, over 5,000 retailer places that has traditionally been very closely architectural and deco targeted. Nicely, we’re now leveraging increasingly more of that community to develop our protecting enterprise, which is how we’re profitable in that enterprise in different nations just like the U.S. and Canada. In order that’s a extremely nice development alternative within the protecting space that differentiates PPG.
Operator
There are not any additional questions right now. I’ll flip the decision again over to John Bruno.
John Bruno — Investor Relations
Thanks, Emily. We recognize your curiosity — this concludes our fourth quarter earnings name. Have a superb day.
Operator
[Operator Closing Remarks]
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