Scott Minder - Director-Investor Relations Michael H. McGarry - President and Chief Executive Officer Vincent J. Morales - Vice President-Investor Relations and Treasurer Frank S. Sklarsky - Chief Financial Officer & Executive Vice President.

Frank J. Mitsch - Wells Fargo Securities LLC Mehul M. Dalia - Robert W. Baird & Co., Inc. (Broker) Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker) David I. Begleiter - Deutsche Bank Securities, Inc. Robert Andrew Koort - Goldman Sachs & Co. Jeffrey J. Zekauskas - JPMorgan Securities LLC Duffy Fischer - Barclays Capital, Inc.

Vincent Stephen Andrews - Morgan Stanley & Co. LLC Don Carson - Susquehanna Financial Group LLLP P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) John Roberts - UBS Securities LLC James Sheehan - SunTrust Robinson Humphrey, Inc.

Arun Viswanathan - RBC Capital Markets LLC Michael Joseph Harrison - Seaport Global Securities LLC Nils-Bertil Wallin - CLSA Americas LLC Laurence Alexander - Jefferies LLC Ivan M. Marcuse - KeyBanc Capital Markets, Inc..

Good afternoon and welcome to the PPG First Quarter 2016 Earnings Conference Call. My name is Andrew and I will be your conference specialist today. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Scott Minder, Director, Investor Relations. Please go ahead..

Thank you, Andrew. Good afternoon. This is Scott Minder, Director of Investor Relations. We appreciate your interest in PPG Industries and welcome you to this teleconference to review PPG's first quarter 2016 financial results.

Joining me on the call from PPG are Michael McGarry, President and Chief Executive Officer; Frank Sklarsky, Executive Vice President and Chief Financial Officer; and Vince Morales, Vice President, Investor Relations and Treasurer. Our comments relate to the financial information released on Thursday, April 21, 2016.

I will remind everyone that we posted detailed commentary and accompanying presentation slides on the Investor Center of our website, ppg.com. The slides are also available on the webcast site for this call and provide additional support to the opening comments Michael will make momentarily.

Following Michael's perspective on the company results for the quarter, we will move to a Q&A session. Both the prepared commentary and the discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance.

These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures.

The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC.

Now, let me introduce PPG President and Chief Executive Officer, Michael McGarry..

Thank you, Scott, and good afternoon, everyone. I want to thank you for your continued interest in PPG. Today, we reported first quarter 2016 financial results. We achieved first quarter net sales of $3.7 billion and record adjusted earnings per diluted share of $1.31.

Overall, we continue to deliver strong financial results as evidenced by our adjusted earnings per diluted share growth in the quarter, which increased 11% versus the record established in the prior year. We achieved these results despite ongoing unfavorable foreign currency translation and continued uneven global economic and market conditions.

Several factors contributed to the record first quarter results, including earnings leverage on our organic sales volume growth, our continued heritage of cost management, and acquisition-related sales and income.

Additionally, we've continued to utilize our strong balance sheet, deliver shareholder value, including first quarter 2016 share repurchases, totaling $150 million. For the quarter, our average diluted shares outstanding, declined by 2% year-over-year.

Our strong quarterly results, were aided by our own operational and strategic actions, including aggressive efforts to drive higher organic growth, despite a mixed economic environment. We continue to accelerate our work on developing and commercializing new customer-driven technologies.

Basically, packaging coatings' ongoing customer adoption of our new can coating technologies, along with certain key technology adoptions in our protective coatings business. In addition, we are continuing the rollout of our enhanced customer branding initiatives.

As you would expect from PPG, we continue to maintain our discipline over costs, including finalizing the remaining actions from our previously announced business restructuring program. Now, I will discuss some specific business trends for the first quarter.

Our net sales in local currencies increased about 4%, while reported net sales were consistent with the prior year. Local currency net sales growth was driven by acquisition-related sales of about 3% and sales volume growth of 1%. These gains were offset by unfavorable foreign currency translation of 4% or about $140 million, in the first quarter.

Our first quarter sales volumes increased 1% consistent with the prior year's growth rate, reflecting a continuation of modest global economic trends, led by broadening European demand growth. Sales volumes grew in emerging regions by 1%.

Continued growth in Asia Pacific, including China, was partially offset by persistent market weakness in South America. Most of our business units, experienced higher sales volumes in Asia, led by increased market demand for PPG's new technologies in our packaging and automotive refinish coatings businesses, along with growth in protective coatings.

Automotive, OEM sales volumes in Asia, were tempered primarily, due to a strong prior-year comparable period, where PPG experienced above market double-digit percentage volume increases.

We expect second quarter emerging regions sales volumes growth rates to improve supported by increases in most businesses in Asia and modest overall improvements in Latin America. Volumes in the U.S. and Canada region were slightly higher versus prior year and represented sequential improvements compared to the prior two quarters.

Regional demand trends continue to be mixed by business in country, with ongoing demand softness in certain markets within Canada. In the region, sales volumes grew in our packaging and automotive refinish coatings business along modest growth in our architectural coatings business.

Aerospace sales volumes declined primarily due to lower commercial demand and continued customer inventory management actions. Looking ahead, we anticipate further incremental improvements in regional growth rates in the second quarter, building upon the month of March which had the strongest sales volume growth within the quarter.

Regionally, our highest first quarter sales volume growth rate was in Europe, Middle East and Africa, which delivered over 3% growth. We continue to experience a broadening improvement in Europe demand with our fifth consecutive quarter of improving growth rates.

PPG's volume growth rates were positive across Western Europe with most countries improving year-over-year. Despite overall growth, this quarter, regional demand levels remain uneven.

Improved performance in our architectural coatings EMEA business added to continued strong performance in our packaging and automotive OEM coatings business in the region, primarily due to continued customer adoption of PPG's market-leading technologies and related world-class product, service and support.

Architectural growth was led by gains in the UK and Benelux countries with the year-over-year growth trends. We remain optimistic for future economic driven demand expansion in the EMEA region.

Despite recent improvements, regional demand remains well below pre-recession levels and we continue to see signs of ongoing modest improvements in various economic subsector. During the past several years, we've completed significant actions to reduce our overall regional cost structure.

Similar to our experience to past several quarters, we expect strong income leverage on any incremental sales volume growth. I would like to provide a quick update on foreign currency translation.

As I mentioned earlier, during the quarter, unfavorable foreign currency translation, lowered sales by approximately $140 million and pre-tax income by about $50 million. This was primarily related to the Mexican peso and the Canadian dollar, but included other currencies as well such as the euro.

Based on current exchange rates, we anticipate full-year unfavorable foreign currency translation to lower net sales by $200 million to $260 million and income by $30 million to $40 million. This is a decrease from the figures that we provided during our fourth quarter 2015 earnings call in January.

This change reflects the strengthening of several foreign currencies versus the U.S. dollar during the first quarter. Shifting to earnings, year-over-year adjusted earnings per diluted share increased 11% to a new first quarter record of $1.31 including unfavorable foreign currency translation.

This marks the 13th consecutive quarter of double-digit percentage earnings for diluted share growth, and was achieved despite record performance in the first quarter of 2015.

This trend has strong increases in quarterly earnings per diluted share, as a reflection on the success of our business portfolio transformation actions taken over the past several years, including the successful integration and synergy achievement at several major acquisitions.

For the quarter, performance coatings segment sales declined by 1% and segment income was up more than 6%.

Contributing to the results were higher acquisition-related sales and income, primarily from Le Joint Français and Cuming Microwave, strong income leverage on higher sales volumes, and benefits from business restructuring, partly offset by unfavorable foreign currency translation.

Segment income included approximately $15 million of incremental growth-related spending in architectural U.S. and Canada. I am pleased to report that we are currently launching several new products within many of our domestic, national account partner store networks.

These launches include new premium products at some national accounts, as well as improved product formulation and differentiated product label. Industrial Coatings segment sales were up 2%, and segment earnings increased 9%.

Earnings leverage from organic sales volume growth, acquisition-related sales and income, along with disciplined cost management were partially offset by unfavorable foreign currency translation. Acquisition-related growth was primarily from the REVOCOAT and IVC Industrial businesses acquired in 2015.

These businesses are continuing to deliver strong financial results. They provide an excellent platform for future global business growth. Glass segment sales declined 2%, and earnings declined by 7% versus the prior year.

Higher selling prices and cost management actions were offset by lower sales volumes, $8 million in repair-related expenses due to a planned facility outage and lower equity earnings. Despite the lower sales volumes, underlying flat glass demand remained solid. Additional segments and regional details can be found in the presentation materials.

Overall, our business performed well in the first quarter as we continue to manage against a mixed global economic backdrop. We continue to focus on our efforts on improving organic growth rates through enhanced product innovation, customer branding strategies.

We remain diligent over our costs and are in pace to achieve the previously announced savings from our ongoing business restructuring program. Finally, our balance sheet remained strong and we are committed to deploying between $2 billion and $2.5 billion of cash in the years 2015 and 2016 combined on acquisitions and share repurchase.

In the first quarter, we repurchased $150 million of our stock bringing the total to $900 million for the two-year period to-date. Coupled with the approximately $400 million paid for acquisitions in 2015, PPG has deployed about $1.3 billion on earnings accretive actions against this target to-date.

We have a strong global pipeline of acquisition candidates from various end-user markets. In addition to share repurchases and acquisitions, PPG remains committed to sustainable dividend increases as part of our capital allocation strategy.

Today, our board of directors approved a dividend increase of $0.04 per share, bringing the quarterly dividend to $0.40 per share. This represents an 11% increase versus the prior quarterly dividend. Our last quarterly dividend increase was 7% in the second quarter of 2015.

As you can see by our actions and continued strong financial results, we remain focused on driving additional growth, aimed at creating shareholder value. This concludes our prepared remarks. Once again, we appreciate your interest in PPG.

And now, Andrew, would you please open the line for questions?.

We will now begin the question-and-answer session. The first question comes from Frank Mitsch of Wells Fargo. Please, go ahead..

Hey. Good afternoon, gentlemen. Michael, I was intrigued by your comment about March being the best volume month of the three in Q1.

Can you give us an idea as to, where that was and what does that suggest for Q2 and beyond? Are we looking at PPG getting higher than a 1% of volume growth in 2016?.

Well, Frank, let's start with the obvious question. We're certainly not happy with the 1% growth, but we are in the very early stages of our growth programs, so the BPA-NI for packaging coatings – sure, we'll get questions on that, but that's progressing well. The OEM compact process continues to do well, refinish, waterborne.

So I'd say that's the first commentary. The second one, which is March. March, we had a nice start to the paint season. Clearly, we're anticipating that this is going to be a better paint season than we had last year. So that was a manifestation of that.

Also, you had the uneven and uncertain return from the Chinese New Year, people were worried about that. So we were – and we tried to tell you that we had a good order book coming into the Chinese New Year at our last call. We did see that coming out of Chinese New Year, so we did see good growth there.

And I think the other one is the broadening of the growth rate in Europe, that was a nice win there as well. So altogether, I would say that we were closer to 2% to 3% growth in March versus the 1% that we reported in the overall quarter..

Okay. All right. And as I look at slide nine, in the auto forecast now, obviously we've been spoiled in expecting PPG to outpace the overall industry and in Q1, I guess partly due to a difficult comp, the company matched the overall industry other than exceeded the overall industry.

But as I look at that chart, it looks like Q2 China, you are going to see a material ramp up in activity, am I reading this correctly?.

I think the way I would think about this Frank is, we've always said that, we were not always going to outperform the industry at some point, we would have some reversion (17:13). If you remember last year, first quarter of 2015, we were up 9% and Asia was up much higher than that.

So when I look at our automotive performance, we had two regions that outperformed, one region that underperformed and one region was at parity. So we were essentially at the 1.7% growth rate for the industry.

So I would say, when I think back about the four years of consecutive outperformance, if our team took a one quarter pause, not happy but obviously in the grand scheme of things, we will continue to perform very well in the automotive business and I would expect that we're going to continue to see growth. In Europe, registrations were up 5%.

So I would expect European builds to continue. Asia builds, India is really doing well. I'm not going to call the bottom in Brazil, because I don't where that is. But certainly, I think overall, we're pleased with the performance..

All right, that's very helpful. Thank you..

Thank you, Frank..

The next question comes from Ghansham Panjabi of Robert W. Baird. Please go ahead..

Hi, good afternoon. It's actually Mehul Dalia sitting in for Ghansham.

How are you doing?.

Good.

How are you?.

Good.

Can you talk about pricing in auto OEM market globally? Are you seeing any price concessions, given a decline in raws and the bargaining power of customers in that business? And then just more broadly, how should we think about pricing for the company as a whole in 2016?.

Well, let's talk about pricing in general. At the end of the day, we have consistently been able to price in this environment. Last year, we had marginally positive price in an obviously very challenging environment. We have forecasted marginally – flat to marginally up again this year.

The automotive segment, it's not really a fair thing to look at it, on a piece-by-piece basis, because most of what we have is new product technologies, so it's hard to compare the new technology versus the old. So overall, we have very sophisticated automotive customers, they expect fair pricing.

We have new technology, we expect to be paid appropriately for our new technology and I would say both parties are very happy with the price and value and performance of the new products in the marketplace..

Thank you.

And then, for my next question, can you parse out growth in the various channels in North America piece during the quarter, so I guess company-owned stores, national account, independents in Canada? And how is kind of your performance compared to the market?.

Just we were having little difficulty hearing you, let me repeat the question. I think you asked if we could parse out the different volume growth by U.S.

architectural channel, is that correct?.

Yes, exactly..

Okay. So U.S. architectural channel. So overall, we had the low- to mid-single digits in that channel, it depends by region.

So obviously the one that continues to go backwards and no surprise is that dealer, independent dealers channel, that's an area where that is a shrinking environment, you have the small owners of hardware stores and paint shops over time losing share to the big boxes and to the company-owned stores. So no change in that environment.

I don't want to comment per se on how our retail customers are doing. I think it's up to them to comment on how the retail customers are doing. What I will tell you is that we had new product launches with Diamond in the Glidden brand in Home Depot. The early signs – it's just now getting into market. The early signs are very positive.

We have a super premium price point. Our Paramount in Menards also off to a good start, Glidden Complete at Walmart. So I think when we look at it from our perspective and I certainly have to let our customers talk about it from their perspective, but we're pleased with what we're seeing.

The company-owned stores varies by region and varies – whether it's U.S. and Canada, but clearly there is an opportunity for us to continue to deliver more growth going forward..

Great. And just one last one.

Can you give us some more details on the weakness in aerospace, is it just small plains, large plains or both, and kind of what gives you confidence on an improvement in 2Q?.

Sure. So when you think about the aerospace business, you have to – there are several things to think about. So one of them is, year ago, customers were having significant launch programs, and as they ramped up, the last thing they want to do is stop their line with lack of products and so they intended to over-inventory.

Now they are more at a steady state rate and so there, it allows them to have more confidence in their build rate and their usage rate. So that's a short-term hurdle.

You do have some underlying softness though, if you take the oil and gas market, they fly a lot of helicopters, so obviously, they're flying less helicopters in this kind of environment, so you have less aftermarket sales and you have less new helicopters builds, so that would be one.

And then, generally the Asian, there is a lot of churn in the water as you can sell with one of our customers in Canada. So there is some things going on up there. So I think overall, we're on a short-term one quarter, two quarter bump in the road, but I anticipate the second half of the year for aerospace to be much better.

I would point out that the acquisitions that we made, the two aerospace acquisitions we made are performing very well and their growth rate is above the growth rate of the overall business so the outlook, I would say, is solid..

Great. Thank you very much..

Thank you..

The next question comes from Christopher Parkinson of Credit Suisse. Please go ahead..

Perfect. Thank you very much. Can you just walk through a little more detail on what you're seeing in the Mexican market in Comex. And potentially just parse out architectural and stores versus industrial, energy, government spending and just overall just what assumptions are going into your double Mexican GDP growth assumption? Thank you..

Sure. We'll start with first quarter of last year, we were up 10%-plus in Mexico and this year, we were up – our sales were up 5% in Mexico, the GDP in Mexico is 2.2%. Our growth is being driven by several factors. The first one is the new store growth rate. Last year, we added 170 stores in Mexico, we're over 4,000 stores.

We're now today as we speak, over 4,100 stores, and we will add another 170 stores there. So we've been gaining a lot of share in Mexico. The Comex team, when we bought them, had a very large concentration of their market share in what I would call, Central Mexico. They were underrepresented in Southern Mexico and underrepresented in Northern Mexico.

But we have a U.S. retail partner that has stores in Mexico. So we recently introduced a store-in-store concept down there, that's allowing them to gain share as well. So from the store side, it's about service and product availability, and that's doing very well. Certainly, government spending has softened and a lot of that is related to projects.

The government is trying to reduce spending, given the price of oil. But there are elections coming up, so I would tell you that we're going to wait and see how it plays out. But historically, in Mexico, when they have elections, the local politicians try to spruce things up to make things look a little bit better.

And obviously, if they do that, we'd be very happy to participate as we have a very significant share in Mexico..

If I could add one time item, Chris this is Vince. One of the synergies we've earmarked when we did the acquisition was revenue synergy, that's what we added subsequent to the acquisition. And we are doing very well on our protective coating sales into Mexico, which was one of the synergies we targeted, so that is another adder to the growth rate..

That's very helpful. Thank you. And just a quick follow-up. You obviously already had a few shipments from Billions. Can you just give us a quick update on the agreement, ramp-up outlook, et cetera going forward, and just generally how do you feel about its prospects versus let's say maybe a year ago. Thank you..

Well, I would tell you that we have tripled our purchases from Billions in Q1 versus 4Q, but we're not satisfied with the build rate, if you will. We think they can deliver more. Obviously they are successful in selling other places besides PPG. But overall, the product quality continues to get better to consistency, it's better and we are using it.

We recently started to bring it into other regions besides U.S. and Central America and Latin America. So the usage broadens obviously; we started in Asia. But I would tell you, overall, we've been pleased but we've certainly challenged the Henan Billions group to continue to work harder to bring the – its production rate up to a higher level..

Their production rate has ramped significantly over the last six months. They are running very good yields and they just need to ramp-up their pace a bit more..

That's helpful. Thank you very much..

The next question comes from David Begleiter of Deutsche Bank. Please go ahead..

Thank you. Hey, Mike.

How do you expect the recent rise in oil prices to impact PPG? And when will begin to impact PPG?.

David, I would first start by saying, as you know, we always tell you that we pull raw materials six to nine months in Texas, six to nine months and pull it through. So we're still pulling through the lower prices that we saw in 3Q, 4Q. So that's, you know, if you're looking for that positive. Second thing is, you know oil bounced.

If you think about where it started Q1 and where it finished Q1, it kind of bounced down, it came back a little bit. But I'd say overall, it's too early to see where that's going. I mean there is a lot of uncertainty in the markets. Obviously, we're not oil traders, but you can read the same thing if we read as far as oil.

So we're not displeased with where we are and pulling through the raw materials savings (28:28)..

And, Mike, overall, do you think your margins are near peak or can they go higher with operating leverage offsetting maybe a little bit about – a little bit of cost inflation here?.

Yeah, we're certainly not at peak. Don't forget, we still have the savings for Europe, we said for the full year. I think it was $70 million that we're going to pull through in Europe. So that's one. Two, you have significant earnings leverage.

When we get volume recovery in Europe, obviously you saw the margins expansion in this quarter, that was driven by several things and leverage from Europe, restructuring savings, acquisition synergies, some modest raw material benefits. But overall, I still think, we can do better and certainly our team thinks, we can do better..

Thank you..

Thank you, David..

The next question comes from Robert Koort of Goldman Sachs. Please go ahead..

Thanks. Michael, how do you discern if the aerospace customers' inventory adjustments versus demand adjustments..

Well one thing we do is we have a significant insight, because of our share with some of these customers, so we are able to – I don't want to call it vendor managed inventory, but we have significant insight into what they're stocking.

The growth rate for the large, if you take Boeing and Airbus and obviously, they have big backlogs, but their build rate is flat to marginally down. And that is obviously, when you think about their inability to get production rates up, it's frustrating for us. I can't imagine, how frustrating it must be internally for them.

But that's the two ways, we look at that, Bob..

And can you talk about variation in price across the portfolio? I assume there are puts are takes, but are there any particular areas outside of non-BPA, the BPA-NI, where there has been price improvement?.

Bob, we have pluses and minuses as you noted throughout the portfolio, but there is no outliers on either side..

And last one very quickly, can we assume the same target level of acquisitions in 2016 that you completed last year? Thanks..

I think that's a reasonable expectation. As we've always said, it's impossible to predict large ones. We have a pipeline that looks very similar to the pipeline we had last year. We had seven deals that had about $400 million in sales. I would expect to see a similar level of activity this year.

And I think, you'll have – you'll see that as we go through the year.

Bob? Andrew?.

All set. Thank you..

Okay, thank you..

Thanks. The next question comes from Jeff Zekauskas of JPMorgan. Please go ahead..

Hi, good afternoon..

Hi, Jeff..

Hi.

What are the net cash outflows from asbestos this year? And do you still think you'll settle your asbestos liabilities?.

Yeah. This is Frank, Jeff. We do expect we're going to settle up in the first half of the year, before the end of the first half of the year.

And consistent with what we've said in the past and what you'll see when we file our Q or when we lay that out, we've got about $0.5 billion of cash going out initially, plus the option to payout an additional amount of cash, which represents the present value of the future obligations, discounted at 5.5%, will obviously evaluate economic conditions at that time to determine whether we take advantage of that discount that could potentially be attractive for us to do so.

So the growth being something over $800 million, but then almost immediately, we will start on a quarterly basis via adjusting our estimated taxes and we'll over the ensuing few quarters achieve a benefit that will bring the net cash outflow in total for about $0.5 billion.

That would assume, if you were to assume that we took advantage of the discounted annuity. So that would be the way we'd look at it. And of course we also have the donating of the PPG stock to the trust in addition to that..

And Jeff, we have that stock hedged at about $22.

That's right..

So if you do the math, it's about 2.8 million shares, so you're looking at somewhere in $50 million range. That stock is in our share count already, it will remain in our share count going forward..

But that $50 million is included in the amounts that I gave you..

Okay. Great. And for my follow-up, your gross margin last year expanded a 110 basis points and this quarter, it expanded 160 basis points, even though you had no sales growth. But last year, your currency effects were negative 7% each quarter and this quarter, maybe it was a little less than negative 4%.

Is there a link between the smaller currency pressure and the widening of the gross margin or are they not linked? And if they are not linked, why did your gross margin qualitatively advance versus what you were achieving last year?.

Yeah. This is a good observation. Despite the fact that we still – even though the currency headwind was a little bit lower than we expected, it was still a headwind in Q1 versus prior year. I think there is a combination of factors.

One, we did get some benefit, additional benefit this year from restructuring that would not have taken place in the last year's first quarter, because the restructuring program was really just getting underway at that point in the first half of the year. So there is that piece of it. We had some manufacturing productivity.

We've moved more aggressively, obviously, particularly, in Europe and are rationalizing and moving against a more shared service environment from the administrative side.

Acquisitions with a nice pass-through of the margins from those acquisitions was also an uplift, as those acquisitions provided us a margin, a little bit above the corporate average.

So the combination of factors, plus, admittedly as we had said before, a modest amount of raw materials savings in the first half of this year, continuing what we saw in the back half of last year, all that contributed to the 110 basis points..

160 basis points..

160 basis points year-over-year..

Right.

But did the change, did the smaller currency headwind benefit your gross margin?.

I would tell you, on a relative base value, it was still a headwind. And so from an absolute standpoint, I guess, the answer would be no.

And even when you go back to last year's first quarter, that the headwind wasn't materially different than it was in this year's first quarter, even though this year's first quarter was a little less than we might have expected..

Okay, great. Thank you so much..

Thank you, Jeff..

The next question comes from Duffy Fischer of Barclays. Please go ahead..

Hey, good afternoon, fellows..

Hi, Duffy..

The question is just around Europe. I'm seeing some recovery there.

Could you kind of tease out where you're seeing that recovery? And then in architectural in Europe, are you growing with the market or faster than the market over there?.

Well, let's take it by country, Duffy, just to add a little more color to it. So starting with the UK, Ireland, it is growing faster than the company average and taking share clearly.

Then, you take France, growing lower than the company average but taking share, then you take Central Europe, I would say slightly below the company average maintaining share. Okay, that's kind of the architectural landscape, if you will. But then, when you get into our other businesses, we have a broadening recovery.

So Southern Europe, Spain, Italy, for example, significantly accelerating growth quarter-over-quarter at all our businesses, and that's a benefit. We don't have architectural – we do have a little bit in Spain, but very little. We have a little bit in Italy, but grand scheme of things pretty small.

So overall Spain, and Southern Italy and Southern Europe is doing very well, and that's a net positive for us. The offset to that of course is Russia. Although I will tell you that we're outperforming in Russia, especially in our industrial business. They've done a really good job.

There they're trying to get more localization and so that has benefited us. On the Middle East, the Middle East I would say slightly better than the company average and that encompasses all our business. And I'd say, our protective business is probably one of the ones that are doing pretty well in the Middle East..

Great..

Duffy, there is a slide in our presentation deck, that shows the region. It's a heat map that shows the region by country year-over-year..

Okay, fair enough. And then just on BPA, you've been taking some nice market share there.

How long should we think about that trend lasting? Is that something that's got another four quarters or five quarters, or might it have another eight quarters to ten quarters?.

Well, I would look at it just like I look at automotive. We had four years of automotive outperformance. This is the technology that we're leading in. There has been two plants converted in France. We have the vast majority of that business. Now with the Proposition 65 in California, there have been six plants converted in the U.S.

and I would call our share at five-plus out of those six. And so you still have the whole wave with the rest of the U.S. to come. The food guys just starting to convert probably the third quarter of last year, so you still have that coming on. So I think net-net, this is a long-term structural gain. I mean, we use to have only 3% share inside the can.

You would think over time, we would approach 25% or 30% share at a minimum. I'd certainly have challenged the team to be better than that, but I would tell you this is a secular change.

These guys take – they don't change for 30 years and then when they do change, it happens over time and we should expect to see this ramp up over the next several years..

Great. Thanks, fellows..

Thank you..

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead..

Thank you. Wanted to revisit the M&A conversation. And I guess my thought is that there obviously was a large transaction announced between two of your larger peers and the byproduct of that is that they are no longer competing with you for any M&A assets that there might be out there.

So I'm just wondering if a dialog between yourself and those on that target list of yours is accelerating or changing in any way.

And has there been any impact on the discussions from the transaction multiple that was recently put up on the board?.

Well, I think you have to evaluate these independently. The transaction multiple that was announced in the first quarter was a unique property and came with a unique price and we certainly – if anybody tried to argue for that price for PPG to pay, that will be a very short discussion. So we'll start there.

The second thing I would say is, perhaps they could be out of the market for some period of time, but you know what, they have cash that is easy to get and we're not going to assume that this is an open runway for us. We're going to look at what our competition is. We have multiple people that are competing with these properties.

And so we will continue to evaluate that. But the bottom-line is we have not seen any increase in the number of people coming to us. I would tell you that overall, our mantra remains the same, that we are very disciplined buyers, and that business teams have to make a justification, and the synergies have to be there.

And that's the focus anytime we look at any acquisition..

Very clear. Thank you very much..

The next question comes from Don Carson of Susquehanna Financial. Please go ahead..

Yes, thank you. Just a question on your architectural growth in the U.S. and Canada. So you talked about low- to mid-single digit growth.

Do you think you're underperforming the market there? How would you characterize the overall market growth? And what kind of a sort of snapback you see this quarter and into third quarter based on the weather?.

Hey, Don. This is Vince. Little bit of an early read to paint these and then we don't enough data points yet to determine, by channel, how we're performing versus some of the other folks and March is a little bit of a – typically a murky month.

We feel that, in the – as Michael mentioned, we've had new products in some of the major home centers and we feel those products are good new products, with good new branding. The independent dealer channel is a shrinking channel. We certainly feel we're holding around there. And as Michael mentioned at the beginning, we've got to do better in our U.S.

company-owned stores. And in Canada, we think we're at parity at minimum. So – but a little too early to paint these and to call it one way or the other..

Okay. And then, just to follow-up on your channel strategy, you've talked about investing in branding.

Is this designed more for your company-owned stores? And what kind of investments should we expect in your company-owned stores going forward? Are you looking to open a certain number every year, to sort of get that mix up above 50% of your overall architectural sales volume in U.S.

and Canada?.

Yeah. So when you think about the $15 million investment that we made, that is – was a first quarter investment, that's a non-recurring investment. We do have enhanced brand strategies that we're rolling out, but that's incorporated where we might be replacing dollar one with – or category A with category B, so there is no real step change there.

We do open up, we expect to open up, we typically say 25 stores, 50 stores in the U.S. and Canada, but we will be opening up 200 stores in Mexico – 170 stores to 200 stores. We will be opening up stores in Europe as well, so that will also be in that 20 stores to 25 stores range.

And so we continued to evaluate opportunities to grow this business, but I'd say overall, I'm pleased with the performance there..

Okay. Thank you..

The next question comes from P.J. Juvekar of Citi. Please go ahead..

Yes. Michael, I want to go back to the refinish business.

What kind of growth are you seeing there? And can you break it down between price and volume? And then, are MSOs getting bigger and bigger volume discounts?.

Let's start with the easy one, the MSOs, it's been relatively constant. They'd like to have bigger, but everybody, every customer we have wants a bigger discount, but it's been relatively flat.

When we think about our refinish business, it's not just the U.S., it's where – when we look at China, that is especially a good market for us, so they are shifting from solvents to water, there is a big tax in China on solid-based products. So that's a positive for us. Historically, we do have positive price in our refinish business.

You would expect that this year we have a positive price as well. Interestingly enough, volume in the U.S. is actually up. That has – miles driven is up 2%. Not only do you have miles driven up, but you have distracted driving up immensely. I'd see it about everyday on my way home. So that's a positive.

The other thing is, when you look at what's happening with technology, our water-based product is outperforming in every region in the world. So even in Argentina, right now, our business is growing in Argentina. We're – one of our competitors vacated Brazil, we picked up a huge chuck of that business. One of our other competitors vacated Europe.

We picked up the vast majority of that business. So we continue to perform in that regard. So when I think about one of the shining stars in PPG, refinish is at the top of the list..

And P.J., just add to what Michael said. This is Frank. Remember we sold it in the past.

With our strong position over in Asia, particularly in China and the move from premium to the mid-line offerings, we have an opportunity to really grow that business over the long-term, because there is production, over 20 million units, goes mostly still to that market.

That car park continues to grow, whereas in the developed regions, where we also have solid positions.

The car park is relatively steady, so you are depending upon miles driven, distracted driving and things like that, but China has the additional benefit of adding a lot of units to the car park and so those growth rates, over the long-term, bode well for the business overall..

Great. Thank you. And secondly, did the introduction of HGTV at Lowe's, have any impact on our sales at Lowe's? Thank you..

Well, I think, the way to think about that P.J. is, which price points do we compete in and so, I think the way we looked at it is, our total sales through our retail partner were up year-over-year 2015 versus 2014.

And I'm not unhappy with the first quarter performance and our relationship is very strong and so, I would tell you, that is obviously a retail decision on how they split their brands and how they position them. But overall, we're happy with that relationship with Lowe's..

Great. Thank you..

The next question comes from John Roberts of UBS. Please go ahead..

Afternoon..

Hello, John..

With a coming consolidation in the number of suppliers into the DIY retail channel, you think we should expect some rebalancing among customers, some churn to see share go up and down more than we have in the past, for example? And if there is a divestment, let's say, out of the Sherwin-Williams Valspar business, do you think we might end up with a new competitor in this space here that you might have to worry about?.

Well, John, we don't speak for our customers, as Michael said earlier, their sourcing decisions are typically theirs.

I think we've got, as exhibited by the new products we're placing into the channel, and you're talking about the share, we always have good relationship with those customers, but we're not at liberty to make sourcing decisions for them.

With respect to the acquisition of Sherwin and Valspar, we're not sure what the outcome of that will be, so that's not within our jurisdiction or our decision tree, so we'll leave it to the parties to be..

Okay. Thank you..

The next question comes from James Sheehan of SunTrust Robinson Humphrey. Please go ahead..

Thanks for taking my question.

Can you talk about your expectations per TiO2 prices? Looks like they maybe going up a little bit here in the short-term, what's your outlook for the rest of the year on TiO2?.

James, TiO2, we've always said is a supply/demand-driven environment. When I think about what's going on in the overall global supply/demand environment, you have additional capacity in China, you're soon to have additional capacity in Mexico. So from that regard that's obviously more supply.

Demand, if you look at Europe, European TiO2 consumption is down about 15% from its peak. So net-net, even though Europe volumes are recovering a little bit, they're still substantially down from where they were. Then, of course, you had the material weakness in Brazil, the material weakness in all of Latin – most of Latin America, Russia.

And so from a supply/demand standpoint, I think – we still see it as a balanced market.

And I know they are out there running around with price increases announced, but if you remember, they've had price increase announcements for several quarters out of the past two or three years and that's just because they announced doesn't mean that we're paying.

So, overall, – our goal as you know, we've taken out of PPG 10% of our TiO2 consumption is down, because of substitution strategy, replacement of alternative products, and also with the bringing in Henan Billions.

So I know there is a lot of noise out there, but when we talk to our suppliers, we're trying to get them focused on supply and demand, and that's where we're going to steady on that topic. I know they are looking at – they're not making any new money, but they didn't write us a check, the last time when they were at the top of the cycle..

Great.

And can you also comment on demand trends that you're seeing in various end-markets in China?.

Sure. So obviously automotive was up, everybody see those numbers, so good performance there. Industrial is a mixed bag; depends upon which segment, so anything to do with commodities, is down heavy duty equipment down. Packaging, we're a little disappointed, the packaging output is relatively flat.

You know with the consumer-driven economy, we would have thought that would've been up a little bit more. But we are gaining share there with our BPA non-intent product. So we could be doing better. If you look at refinish, refinish what Frank explained earlier, the car park is growing, when they made the nice move to the premium market we gained.

We're now, we're introducing some mid-tier products, so that should be a net positive. It hasn't happened yet. But there is COMAC, which expects to build an airplane at some point in time. They rolled it out the hanger, but they rolled it back in the hanger. So (52:36) saw it they didn't fly.

So I don't know when that will start, but obviously we have a lot of content on that plane. So if it does get into production, we will be a net beneficiary of that. On the protective side, we are doing very well in protective in China.

Marine, not bad but, you really have to balance out with the fact that the Korean Marine is just falling off a cliff, in fact two of the three largest Korean shipbuilders did not even get a major order in Q1. So you have to balance what you see in China with the fact that Korea, which is where the big market is, is off.

So I guess that would be my kind of around the segment approach there..

I just want to reemphasize James that, Michael talked earlier about India. We are seeing very good growth in India across all the markets, in which we participate in. It's a smaller market for us, but an important market, so it is a very good growth trend right now..

Thank you very much..

The next question comes from Arun Viswanathan of RBC Capital Markets. Please go ahead..

Hey guys, good afternoon. Yeah, I was just – maybe digging on the volume side a little bit more, the 1% volume growth that you posted across the portfolio, I know you guys weren't satisfied by that.

And, maybe, can you help us understand what kind of visibility you have, maybe on a couple of the larger businesses, OEM, refinish, aero and architectural, why that would accelerate as we through the year? And are their specific projects or something else specific to you guys? Thanks..

Sure, I'll take a shot at that Arun. If you look at our different businesses, we have a best visibility in both marine new-build and aerospace where we have a very long order cycle, we have fairly concrete order patterns by our customers.

In the middle, you would have some industrial customers, automotive customers, where we're seeing, with confidence, will call it a month's worth of orders with fairly good confidence.

And then on the other side of the equation would be architectural, including company-owned stores and independent dealers where people are walking in on a daily basis and the order pattern certainly has a cadence to it, but it's not as predictable. So there we have, let's call it a few days worth of visibility.

If you aggregate all that, 50%, 60% of our business, we can see out probably several weeks if not a month or longer, and so that's what gives us our ability to forecast for you of what we think..

Okay, thanks. And then also as a follow-up.

Just curious, are we still kind of expecting that overall volume growth could approach mid-single digits for the year? And I guess, where would you see the greatest amount of volume growth?.

Well, we definitely expect improvement as we go throughout the year. Again, I think in Q1 of this year, we had some very difficult comps in some large businesses. Michael mentioned almost 10% comp we had in automotive in Q1 year-over-year. That starts to wane as we go throughout the year.

And again, we had – as Michael mentioned earlier, we had some easier weather comps in some of our businesses in the U.S. as we come up on Q2 and Q3. So our expectation certainly is to move the needle more positively than we did in Q1..

Okay, and then lastly, if I may, the FX side, I know that you had said that there was still a negative impact in Q1.

Would that also wane as we go through the year? And do you expect ultimately to potentially even get a benefit if we stay where we are on the euro?.

Yeah, Arun, it's a – it should. If we stay at current rates across the board, it will definitely wane as we go through the year, so Q2 impact will still be a headwind, but a bit less than Q1, I think stay where they are and will continue to dwindle down as you go through the year.

Positive and negative at some point in time, well, it depends on the mix, because for us last – the last few quarters, the biggest headwind was the euro with a little bit stronger euro than anticipated, but a little bit weaker peso for instance, because of some of the oil-based factors there as well, some weakness in the Latin America.

So that mix has changed.

So could one of the currencies turn positive at some point in time? Sure, but overall, if you look at the whole basket, yes, the $140 million on the top-line and $15 million you saw on the bottom-line in the first quarter, that will be a little bit less than the numbers that Michael gave for the year that $200 million and $260 million on the top-line and the $30 million to $40 million at the bottom-line dictate that at current rates things will automatically come down.

We will see how that plays out (58:07) throughout the year..

And I'll remind everybody, the guidance we gave in January was close to $600 million top-line and $15 million – I'm sorry $70 million, $80 million bottom-line. So there is a significant improvement versus three months ago..

Right..

Right. Okay, thanks..

The next question comes from Mike Harrison of Seaport Global Securities. Please go ahead..

Hi. Good afternoon. Thanks for sneaking me in..

How are you doing?.

Doing well. I was wondering if you could give us an update on exactly where you are with some of the display resets you're doing at Lowe's, how much of that is complete.

And do you have any metrics that you can share with us in terms of the customer response, either at Lowe's or what you're seeing from the actual DIY customers that are going through?.

Well, I won't talk about specifically Lowe's. I'll talk about the industry in general, when you look at the home centers. The typical way they do the resets is they start in the southern and western states and then work their way north. So you think about that, we're probably less than one-third of the way through it.

Typically, they're all done by the end of May. So that's kind of the cadence that we would be working on. Again, we don't want to talk for our customers, but the early indications that we saw, we were very pleased with the early turnover in the stores.

But again, it's a small data set in Q1, because if you think about it, most of that started to getting set mid-March. They only had two weeks in Q1 and then you'll have – probably half of a quarter – half to two-thirds of the quarter in the second quarter..

And the $15 million worth of expense was partially related to that.

That spending is complete at this point, correct?.

That is complete and it was a one-time spend..

Got it. And then the last question I had is just on the auto refinish business in Latin America.

I know that you had been seeing some weakness there, has that started to show any signs of improving or still pretty weak?.

Well, I think, you have to look at it by country, right? So Mexico is still doing well in Mexico. Colombia, I would say more flat-lined. Argentina is getting better, so that was the one positive. And even though Brazil is going down, we're actually going up, because one of our competitors pulled out of Brazil.

So that's been a positive from a refinish side..

It's still....

All right..

...significantly negative overall in Latin America for Q1..

All right. Thanks very much..

The next question comes from Nils Wallin of CLSA. Please go ahead..

Hey. Good afternoon. Thanks for taking my question. Michael, with the respect to the long-term outlook in the BPA non-intent your four-year, five-year cycle, curious to know how much is sort of beverage can penetration is baked into that.

And where you see the bottlers and the can producers, currently in terms of their BPA usage within the can?.

I would say this is inning bottom of the first, top of the second inning. So there is a lot of work to be done in this regard. You tend to have one customer on the beverage side as a leader and then most of the other guys tend to be followers. So we're out in front with the leader in that area.

And you have a couple of food guys that are more aggressive, so they've moved at a faster rate than the beverage guys have. And then, I would say that the – on the beer side, it's even on a slower ramp.

So there has been a lot of pack test done, there has been a lot of a taste test done, there has been a lot of work in that area, but as far as actual production, it is way, way early in the game for those guys..

And then, Nils, just to piggyback on Michael was saying before too, keep in mind that in businesses where we've typically outperformed in the recent past, we were already starting with a solid market share position, and those businesses were already are kind at a mature level.

This has two advantages – this sector, not only at its infancy in terms of adoption, we're also starting at a point in time, where as Michael said, very low share inside the can, so everything is incremental share across early points of adoption.

That's what gives us the confidence that this is a multi-year trend and has a lot of legs to it for some time to come..

Got it. That's very helpful. Thanks. And then just as a follow-up. The independent network in North American architectural, obviously has been down.

Do you have a sense, what, first of all, over the last couple of years, the average rate of decline has been? And do you think it's accelerating/decelerating? And where does it, sort of bottom-out, or does it just completely disappear?.

First, Nils, let me say that this channel has been in a contraction mode for a quite some time. If you look over a longer period time, call it five years or seven years, the contraction has been more modest in the industry as expected.

I'd definitely say the last couple of years, that's accelerated somewhat but it's lumpy, so there is not a linear path here. And right now, I think we are probably contracting somewhere between, let's call 1% to 2% per year, over the last couple of years, to the market..

I mean, where do you expect it to actually to bottom-out? Is it percent of the total market?.

It's a long, long-term play. I mean, obviously as our retail partners get bigger, as the company-owned store networks get bigger, it's more challenge as these people that own these stores, as their children do not want to be in the hardware business or don't want to be in the paint store business, they tend to sell.

So, over time, this is just the demographic play that will continue to play out. But you're talking about 30 years, 40 years, 50 years, this isn't something that's going to be gone in three weeks or three years..

Understood. Thanks very much..

Thank you..

The next question comes from Laurence Alexander of Jefferies. Please go ahead..

Good afternoon. Two related questions.

First, as you look at your comments around the operating leverage to the recovery in Europe and also opportunities to improve your supply chain and productivity, is there any structural reason why your conversion of sales to free cash flow shouldn't improve on a two-year to three-year kind of base growth (01:05:39)?.

I think it's very good point, Laurence. Not only will we get the operating leverage, but we're also – have a multi-year for going out and improvement in working capital and that also will help us improve the conversion, cash flow conversion.

So we still have the opportunity to improve inventory levels, we're working on a complexity, which will improve days of inventory, still have some room to improve our past due receivables that will help conversion.

The other factor is that we have said in the recent past that our capital spending is more in a peak level now and will decline over the next five years, that will also improve our cash conversion as a percent of net income and as a percent of depreciation.

So all those factors considered actually bode well for our cash conversion percentage over the next three years to five years..

And Laurence, we're still down volume wise in Europe, let's call it mid-teens..

Right..

So there is still a lot of recovery left and I think we'll get back all that as a region, but there is still a lot of recovery left in the region..

And then when you look at industrial coatings, the value proposition to the customer, the mix that you have in your – between the what you call, the protecting surfaces as opposed to decorating them or beautifying them.

Do you have the right balance or is that balance going to shift over time and does that shift, if there is one, have any implication for either margins or sales growth?.

I think, Laurence, we do both. I think the coatings industry not only PPG, but we protect and beautify. So it's a dual purpose that the coating provides, so I don't think there is a mixed differential. On an automobile, it protects the surface and beautify the vehicle itself. So most of our coatings do both..

Okay. Thank you..

And the last question today, due to time constraints, will come from Ivan Marcuse of KeyBanc. Please go ahead..

Thanks. Just a couple of quick questions. The first one was onto Laurence's question. What is your goal for working capital as a percentage of sales, it continues to improve.

What do you think you could get to (01:07:53)?.

Yeah, it's going to vary by business. The businesses some of which are largely transactional and require very, very quick response to customers are actually going to carry something in more than high-single digits.

If you run the numbers based on our inventories right now, you can say we're around 80 days of inventory, if you run it off the financial statements. We think that there was a good five to seven days – five of 10 days of inventory opportunity there. We picked up five days last year. There are still several more days hit (01:08:21) to our benchmark.

We're looking at a 100 basis points a year, generally to improve working capital. Combination of payables remain a lot of progress recently, inventories, past due receivables, so. And keep in mind, that every day of inventory and payables is worth $25 million, everyday of receivables is worth $43 million.

There is a lot of leverage on cash flow by improving it just a little bit..

Great. And then my last question is, you mentioned that March is your strongest month with 2% to 3% type of volume growth.

Did Easter have a sort of impact on March, I know that from April to March or is that sort of a negligible type of a event for your business?.

For most of our businesses, Ivan, our B2B businesses specifically, it has a negligible or no impact. Most of our B2B businesses run 24x7. Easter did move into Q1 this year, it was in Q2 last year. It might have had a small crimp impact on some of our B2C businesses, again not, what I would call noticeable in the numbers..

Great. Thank you..

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Scott Minder for any closing remarks..

Once again, I'd like to thank everyone for their time and interest in PPG. If you have any further questions, please contact Investor Relations. This concludes our first quarter earnings call. Thanks..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..