Scott Minder - Director, IR Michael McGarry - Chairman and CEO Vince Morales - SVP and CFO.

Robert Koort - Goldman Sachs Mike Leithead - Barclays Steve Byrne - Bank of America Merrill Lynch Christopher Parkinson - Credit Suisse Jeff Zekauskas - JPMorgan Mehul Dalia - Robert W.

Baird David Begleiter - Deutsche Bank Frank Mitsch - Wells Fargo John Roberts - UBS Kevin McCarthy - Vertical Research Partners Michael Sison - Keybank Dmitry Silversteyn - Longbow Research Laurence Alexander - Jefferies PJ Juvekar - Citi James Sheehan - SunTrust Robinson Humphrey Matt Gingrich - Morgan Stanley Don Carson - Susquehanna Financial Mike Harrison - Seaport Global Securities Arun Viswanathan - RBC Capital Markets.

Good afternoon and welcome to the PPG Industries’ First Quarter 2017 Earnings Conference Call. My name is Denise and I will be your conference specialist today. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.

[Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Mr. Scott Minder, Director of Investor Relations. Please go ahead, sir..

Good afternoon. This is Scott Minder, Direct of Investor Relations. We appreciate your interest in PPG and welcome you to our first quarter 2017 financial results teleconference. Joining me in the call from PPG are Michael McGarry, Chairman and Chief Executive Officer; and Vince Morales, Senior Vice President and Chief Financial Officer.

Our comments related to the financial information released on Thursday April 20, 2017. I will remind everyone that we have posted detailed commentary and accompanying presentation slides on the Investor Center of our website ppg.com.

The slides are also available on the webcast site for this call and provide additional support to the opening comments Michael will make momentarily. Following Michael’s perspective on the Company’s quarterly results, we will move to Q&A session. In this session, we request that you focus your question of PPG’s first quarter results.

We do not intend to provide any additional or new information regarding our proposals to combine with AkzoNobel at this time, other than what Michael will say in his opening comments.

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’s Chairman and CEO, Michael McGarry..

Thank you, Scott and welcome. First and foremost, I still submit, it is impossible to know what is best for you stakeholders until you fully evaluate all the options. We believe AkzoNobel’s new, strategic plan will be more risky and creates more uncertainty for Akzo’s, stakeholders including employees and pensioners.

Facts are that Akzo’s newly revised strategy would create two smaller unproven companies and a detailed additional restructuring.

The contemplating restructuring overall and specifically the restructuring actions associated with the headquarter related stranded costs are very surprisingly inconsistent with Akzo’s previously stated comments of safeguarding job security especially in the Netherlands.

Separately, Akzo is also critical to PPG’s proposal, given the combination that companies would involve an antitrust review process.

However, included under Akzo’s dual-track process is a clear option articulated to sell their specialty chemicals business, which would be subject to a detailed antitrust regulatory process, including associated regulatory review timing.

In addition, decreases in free cash flow from demerged companies is often underestimating, putting future and accelerated growth plans at risks. Next, Akzo management was recently critical and raised credit ratings as a concern with PPG proposal.

However, Akzo detailed yesterday, they are anticipating resulting downgrade in credit ratings with their standalone strategy.

In conjunction, a downgraded credit rating may also have ramifications on pension funding requirements and we noted a great deal of discussing yesterday by Akzo about potential impact of their standalone strategy on pensions and funding obligations.

We find it interesting that the revised €100 million 2017 EBIT target comes so soon after Akzo’s 2017 target setting meeting on February 15th and also that nearly half of the €100 million figure occurred in the first quarter which is typically a seasonally slower quarter.

It is confusing as Akzo expressed concern over R&D spending in their response to the PPG proposal. Akzo say they want to invest €1 billion in coating R&D through 2020. However, this cumulative €1 billion sounds lower than their annual R&D spending in 2016 of €363 million.

Are they are still willing to commit to their overall combined R&D spending from last year? And more generally we believe equity markets react swiftly and typically appropriately to any additional news, and the market reaction reflects it in the stock prices.

And lastly, at PPG, we continue to believe past performance is the best predictor of future performance. As Scott mentioned earlier, we do not intend to provide any additional information regarding our proposal to acquire AkzoNobel, in the question and answer portion of this call. Turning our attention to PPG.

Today, we reported record first quarter 2017 financial results. We achieved net sales of $3.6 billion and adjusted earnings per diluted share from continuing operations of $1.35.

We delivered solid financial results to start 2017 including a more than 6% year-over-year increase in adjusting earnings per diluted share and a 3% improvement in local currency sales or an increase of 1% as reported.

Our sales growth was driven in large part by higher aggregate coatings volumes at 2%, which is our strongest performance since the fourth quarter of 2016 and the modest benefit from recent portfolio optimization actions where acquisition-related sales exceeded the actions of sales from divested businesses.

We achieved these improved results despite the ongoing, unfavorable impacts in currency translation and moderate but uneven global demand. Our EPS growth rate improved versus the prior two quarters, primarily due to the benefits of ongoing cash deployment including share repurchases of a $165 million in the first quarter.

For the quarter, our average diluted shares outstanding declined by nearly 4% versus the prior year. Earnings leverage on our sales growth and continued operational cost discipline resulted in lower manufacturing overhead costs including the initial benefits from our 2016 business restructuring program.

Several factors served as offset to these earnings improvements including increased raw material costs, which we partially offset with our initial pricing actions across several business regions and businesses.

Unfavorable foreign currency translation of approximately $15 million and higher transitory global transportation on logistics cost to meet elevated customer demand in Asia. To address our regional production capacity issue, we’re nearing completion of expansion one of our facilities in China.

This expansion is expected to be fully operational late in the second quarter and will serve to greatly reduce ultimately -- and ultimately eliminate these additional costs beginning in the third quarter.

In addition to our operational improvement efforts, we actively work to strengthen our balance sheet, increasing our cash and short-term investments by more than $350 million and ending the quarter with approximately $1.4 billion on hand. This enhanced cash position provides us with increased financial flexibility to fund acquisitions of all sizes.

In support of our cash balance improvements, we continued our working capital discipline, achieving a 100 basis-point year over year improvement in operating working capital as a percentage of sales.

Additionally, our focus on delivering shareholder value is highlighted again in the first quarter with the acquisition of Futian Xinshi, a China-based automotive refinish coatings company and the previously mentioned share repurchases.

Despite these improved quarterly results, we aspire to a higher EPS growth rate and remain committed to further improving our financial results and deploying our strong balance sheet. Now, I’d like to discuss some of our first quarter business trends.

Our aggregate coatings sales volume growth was led by a continued strong performance in our technology focused industrial coatings segment where each business unit grew by mid single digit percentage versus the prior year and easily exceeding their respective industry growth comparisons.

Sales volumes in automotive OEM coatings have once again began to outpace global industry growth rates, led by above market increases in the growing regions of Europe, Asia, Latin America, partially offset by below market experience in US and Canada where overall industry production volumes declined.

General industrial coating sales volumes increased ahead of industrial production growth rates for the fifth consecutive quarter. Improvements were broad based across sub segments and regions, particularly in Asia Pacific. Additionally, our sales volume growth rate improved sequentially in the US and Canada.

Sales volumes increased in packaging coatings building on strong growth in the prior year as customers continue their adoption of PPG’s interior can coatings products. We continue to see technology-based growth opportunities for this business.

Looking ahead, global automotive industry growth is expected to continue in the second quarter and for the full year with clear differences by region.

We believe that industry sales have plateaued in the US and Canada with lower year over year industry production in the second quarter and for the full year with a continuing shift in industry production between the US and Mexico. We anticipate continued full year industry production growth in Europe despite a decline in the second quarter.

In Asia, we expect industry production to continue to expand in the region for both the second quarter and full year, building on the region’s robust 2016 growth rate. In China, we are closely monitoring expanding dealer inventories and the potential for slowing industry production, as a result.

Finally, we see a gradual recovery of the automotive industry production levels in Brazil after likely bottoming in that country.

We anticipate a continuation of current industry demand trends in industrial and packaging coatings with PPG outperformance expected to continue in the second quarter, primarily due to strong customer adoption of our new coatings technology and value-added services.

Turning to performance coatings, year-over-year sales volumes were in line with prior year, including modest positive year-over-year impact from the Easter holiday shift between quarters in some of our businesses and regions.

Shift in the holiday between the first and second quarter, primarily impacted our B2C businesses while it typically doesn’t impact our B2B businesses. Based on this year’s calendar, the holiday-related shift aided volumes in some of our B2C businesses are negatively impacting other businesses.

We anticipate the net improvement of this timing shift to be about 1% of incremental volume in the first quarter for performance coatings segment and negligible impact on our other reporting segments.

Look at particularly business unit performance in aggregate, ongoing and significant demand weakness in marine coatings offset growth in other business units. Automotive refinish coatings’ organic sales growth continue with improved customer demand in each region, led by above market gains in U.S.

and Canada where we experienced record March sales results. Aerospace volumes were consistent with the prior year as low industry build growth rates continued despite significant customer backlogs.

Additionally, we were negatively impacted by customer’s inventory management actions, primarily in the transparencies sub-segment, which offset the modest demand increases. In architectural coatings U.S.

and Canada, we achieved a solid mid-single-digit sales volume increase in our company-owned stores, which marked our best performance to-date since the store revitalization efforts, post the AkzoNobel North American Decorative Coatings acquisitions.

This growth was more than offset by lower demand in the independent dealer network and mix volume results within our national retail accounts or DIY channel, including the comparisons to prior year and new product inventory pipeline builds at multiple customers.

Sales volumes improved in Latin America, Asia-Pacific and architectural coatings Europe, Middle East, and Africa, where we saw improvements in several Western European countries including UK, Ireland, Benelux countries and building on growth in the prior year.

Sales volumes continued to decline in protective and marine coatings due to ongoing significant weakness in marine ship building activity focused on Asia-Pacific. These declines more than offset our broad based regional growth in protective coatings.

Looking ahead, we anticipate higher segment sales sequentially in the second quarter, as we truly kick off the heart of the architectural paint season in many parts of the world.

We expect the continuation of the current industry trends in aerospace and automotive refinish coatings and modest growth to remain in architectural EMEA with continued expansion in Western Europe and a slight improvement in Eastern Europe demand levels, particularly in Poland.

We anticipate significant ongoing weakness in the marine sub-segment to offset growth in protective coatings, but are encouraged by the recent ship order activity in Korea.

Although, this is a favorable, longer term industry sign and related increasing coatings demand will be delayed as vessels are typically paid at 12 to 18 months after orders are received. Underlying demand trends n architectural U.S. and Canada are expected to remain as we enter the peak portion of the annual paint season.

We expect solid same store sales growth to continue, building on our first quarter 2017 and second half 2016 momentum, and lower demand levels to persist within the independent dealer network.

In our national retail outlets or DIY channel, we’re optimistic about the sales prospects for our new products launch in 2016 and for our newest premium product PPG Timeless stain, currently launched at the Home Depot. This is the first product to prominently carry the PPG name in a major U.S.

home center and is a continuation of our efforts to increase customer awareness of our corporate brand name. In our PPG Comex business, we anticipate a continuation of local currency sales growth of at least two times Mexican GDP levels.

In our glass segment, volumes declined by 2%, primarily due to lower North American fiber glass customer demand in the wind energy sub segment, partially offset by an improvement in oil and gas related end user market demand. We expect these trends to continue in the second quarter.

Looking at a demand from a regional prospective, sales volumes continue to expand in emerging regions of Asia Pacific and Latin America, exceeding growth rates in the developed regions. Demand growth in Asia was led by PPG outperformance in the industrials coatings segment and tempered by significant declines in the marine shipbuilding activity.

Volumes expanded in Latin America across most of our businesses, led by significant increases of automotive industry production in Mexico. Volume growth accelerated modestly in Europe and was broad based across the majority of our coatings business units, reflecting the moderate economic recovery in the region.

Sales volumes were flat in Europe and Canada, indicative of the uneven end-use market demand environment, which included declines in automotive industry production, which were offset by demand improvements in other end-use market segments. We have included additional segment and regional details in our presentation materials.

Overall, we delivered solid business results in the first quarter, despite uneven global market demand and ongoing foreign currency headwinds. We continue to focus on improving our organic growth rate by delivering innovative new products that satisfy our customers’ needs and by further developing our consumer brands around the world.

As is the hallmark of PPG, we remain disciplined in our operations and diligent of our cost and are on pace to achieve $40 million to $50 million in 2017 savings from our current restructuring program.

We implemented price increases in first quarter and announced additional price actions effective in the second quarter to address our increasing raw material costs.

We will continue to look for ways to beneficially deploy our cash to enhance shareholder value and remain committed to deploy at least $2.5 billion to $3.5 billion on acquisitions and share repurchases in 2017 and 2018 combined.

We currently have active pipeline of bolt-on acquisitions and remain -- willing to engage with AkzoNobel to discuss the combination of our companies. This concludes our prepared remarks.

Once again, thank you for your interest in PPG and now, Denise, would you please open the line for questions?.

[Operator Instructions] The first question will come from Robert Koort of Goldman Sachs. Please go ahead..

Thank you. Michael, I was wondering if you could talk about something you touched on at the end there about the efforts to invigorate the organic growth. Obviously, you had a little pickup in the first quarter.

Can you talk maybe about through the quarter trends? And what do you attribute the commentary about there, feeling to be a better economic tone in the U.S.

but not really showing up any business activity yet?.

As you know, Bob, all the surveys on economic optimism have -- continue to go up since the election. We have not seen the order book reflect anywhere near the spike that the optimism shows. We do see solid demand though, just not increasing at that rate.

We saw March was a good month, and that’s always encouraging for March to be a good month as that uses the start of the paint season. And I would tell you that overall, our organic growth efforts are taking hold. As you know, we started on this about two years ago.

And industrial businesses, that’s automotive, industrial packaging all really understand this and doing a really, really fine job.

The refinish is also doing a good job, I think being held back a little bit in aerospace, not because we don’t know how to do it but because a couple of our customers haven’t figured out how to build planes, even though they have a huge backlog.

So, I would say the most encouraging one though was our same store sales and our architecture business in the U.S. and Canada. They performed very well. And the fact that we revitalize the store network, those dividends are starting to play out. So overall, we know how to do it, the teams are getting better at it. And I think it’s starting to take hold.

It’s being masked though by the significant weakness in the marine segment which is taking fair amount off the top line. But on the protective side, all good. So, thanks..

And you mentioned that the stores can sustain that good growth after the investment effort. Is there something wrong with the DIY channel because it seems like that market is not as robust or is there something seasonal or temporary going on there? And I appreciate your time, thanks..

I guess, the way I would describe that is there is more money in the pockets of the consumers and there does seem to be more of a trend to do-it-for-me, if you will as opposed to do-it-yourself.

And we have talked to our customers about the need to get more aggressive in the what I would call, the good category that people have come in the stores, wanting to buy the good level paint and sometimes walk out when they are trying too hard to up-sell them.

So, we think that this is an opportunity for them to refocus on some of the people that haven’t bought paint in that category. So, for us, we think the continuation of same store sales look good; our April start is solid as well. So that’s why we’ve put in the commentary that we are looking forward to a good second quarter..

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

Hey, guys. It’s actually Mike Leithead for Duffy this afternoon. I guess first, can you just walk through the changes you are seeing in your raw material basket? I know TiO2 catches most of the headlines but we have also seen some inflation on the organic side.

So, just trying to get a sense of where we are today versus maybe your expectations heading into this year?.

Sure. So clearly, TiO2 has upward pressure, more that there is a combination of supply-demand, but more because of some of the outages that they have in Europe. I would also say, propylene is up significantly more. This tends to be first quarter, second quarter event every year. We certainly hope that propylene by dehydrogenation trend to help that.

But this year that hasn’t been the case, so propylene is up. Certainly emulsions are up, epoxies are up in Asia. So, there is a few more. And then, when you look at it on a year-over-year basis, this time last year, oil was in the 30s; now in the low-50s. So solvents on a year-over-year basis is up.

Now, sequentially, going forward, it’s not going to be up. And that’s why we think the second quarter is probably the peak for raw materials. But that’s kind of the flavor we see..

Great. And then, in Mexico, it looks like Comex growth remains pretty strong there, even if FX clouds it a bit in your reported results.

Can you just update us on kind of how the PPG initiatives are progressing down there? I guess cost synergies, and I think you had a longer term revenue target; you’re also looking at there, how those programs are going?.

Yes. So, overall, the PPG Comex team continues to perform at exceptionally high level. We continue to far exceed our target, which is two times GDP. The team has opened up 45 new stores in the first quarter of this year. Last year, we opened up about 212, if I remember right. So, we’re ahead of our pace, what we anticipated in Q1.

Our store relocations have also been ahead of pace. We had price increases in Mexico that have been successful as well. The revenue increases that you talked about the synergies, our protective and marine team has done a good job down there in Mexico. We brought new industrial products that they’re selling down there; that’s been a benefit.

And when you look at Central America; that has been a significant win. Originally we said $40 million to $50 million in new sales synergies in the years three through five. We have that $60 million to $70 million. We’re ahead of that pace right now.

Sales actually in Central America last year were up nearly 40%; in the first quarter, they were up more than 20%. So, we were on top of a huge comp we were up against. So, we feel very good about our Comex team..

Mike, one last comment. We have captured fully the cost synergies amounts when we did the transaction..

The next question will be from Steve Byrne of Bank of America Merrill Lynch. Please go ahead. .

Yes. Thank you. This chart you put together that shows your outlook for -- on the first quarter, demand by market and region suggests you saw the U.S. architectural market actually contract in the first quarter slightly year-over-year.

Why would that have been, what would you see is driving contraction in that market?.

Well, the growth comes from the same-store sales; the contraction comes from the independent dealer network along with the big box retail DIY channel. So, that’s it. But, we are projecting 2% to 3% growth for the full year or architectural in the U.S. and Canada..

But was something that holding back the overall market in the first quarter?.

Steve, the colors on the chart reflect -- I think you’re looking at the yellow on the chart, reflecting are below market..

Yes. But isn’t that also suggesting…..

Those are our independent dealer channels, Michael mentioned..

So, you’re below market but aren’t you also saying that the overall market slowed year-over-year in the quarter?.

We think the market is growing at 2% to 3% a year. We do think the market expanded and I don’t have a slide in front of me. I apologize. We do think the market expanded in the first quarter..

Well, then switching gears here, while you’re pursuing this Akzo bid, should we assume other M&A should be either modest or tabled in interim for example, were you not interested in that Valspar wood coatings business?.

What I would tell you is we’re not slowing down our M&A efforts, the pipeline remains actively engaged. And as far as the specific one, I will not comment on that. But, what you should generally think about is that we’d look at most everything in our space..

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

You mentioned you expect to have consistent industry demand trends in the U.S. and Canadian architectural business in 2Q outlook. But, can you just parse out some additional trends based on the specific channels? I think you already said you’re expecting company-owned stores to continue to outperform.

But more importantly, just any key puts and takes in terms of differentials, and gross spend by channel? I think you had some of that in 2016. And then also just any broad thoughts on expectations for new product lines in stains or even Glidden Diamond because I think you launched that kind of a little bit into the season last year..

Chris, this is Vince, I’ll try to answer all your questions. Again, our view is that market continues to remain -- U.S. architectural market continues to remain solid. It’s led as Michael mentioned by professional -- the professional channel where we’re up mid single digits.

I think that was our fifth or sixth quarter in a row where we expanded our growth rate in that channel. And Michael commented briefly on the investments we’ve made in past years, leading up to our growth rate. And we do expect that channel continue to outperform.

As I just mentioned, the independent dealer channel is a modestly shrinking channel and that trend is not expected to change. The home center channel is expected to grow slightly below the overall industry. We do have some noise in Q1 and Q2 year-over-year because we do have product launches last year in both Q1 and Q2.

We mentioned -- you mentioned the Glidden Diamond, which we split between Q1 and Q2 last year as a product launch. We also had our a Paramount product Menards. Again, we split that between Q1 and Q2. And we have the PPG stain Timers launch, which is a smaller category that that’s going into the Home Depot right now.

But we do expect that channel as it did last year to slightly underperform the overall industry. So hopefully, I answered your questions fully..

One by one, great. And just a quick a follow-up on the industrials side. You indicate you’ve seen some solid trends in APAC, LatAm; it seems like the U.S. is okay in that regard but EMEA is still sluggish.

On the latter, can you just comment on any key trends you are seeing, whether it’s by country or just by vertical? And whether or not you are seeing any detrimental in some of those markets in the business? And then, as it improves, let’s say later on the year or even past key elections in the region, if you expect any improvement in op leverage there? Thank you..

This is Michael and what I would tell you is that the same countries continue to have the same strength. So, UK, Ireland continues to do well, the Benelux continues to do well, Germany continues to do well, France remains sluggish; obviously they have an election coming up, so there is a not a lot of spending going on at that level right now.

The recovery in southern Europe continues but I would say has moderated. The disappointment has been more in Eastern Europe that has probably been the bigger challenge in that regard. And of course, the Middle East which we report as part of Europe Middle East and Africa that has been challenged. And then Africa is significantly challenged.

A number of those countries are oil based economies. And as you know, the oil based economies have been challenged. So, when you look at overall Europe, I would say western Europe doing pretty well, eastern Europe a little bit less and then the other ones are the ones that are holding back. I might add, the other one positive would be Russia.

In the first quarter, Russian car sales were 4%; that’s the last time -- I can’t remember last time they were up. They were 50% down since their peak. So, that’s one positive side..

And in Asia, we are seeing good, fairly good solid growth across the region. I think there was some valid concern coming into the year in China on the car incentives that was being partially repealed.

But we did see good automotive sales, again a little bit tick up in inventory in Q1, but we didn’t see a significant decline that tells us there is good solid underpinnings of growth there; India is good, southeast Asia is good as well..

The next question will be from Jeff Zekauskas of JPMorgan. Please go ahead..

I saw that you bought $165 million worth of shares in the first quarter.

Was that share repurchase completed before you thought hard about buying Akzo or were you already aware that you were intending to purchase Akzo? And have you purchased any shares this quarter?.

So, Jeff, this is Vince again. So, Jeff, we did as you know and as we reported in January, purchased roughly $650 million of stock in the fourth quarter. We did that under a program, which we occasionally do. That program ran through our first quarter earnings call.

And so, we won’t comment on what we’ve done subsequent to the end of the first quarter but that program did run through our first quarter earnings call..

And then, secondly, I think your cost of goods sold was up 2.6% and your volumes were roughly up too. So, it seems that you had a very low rate of cost of goods sold inflation.

Is that because you had a way of managing your inventories or was it that your raw material costs were up at a higher rate but you offset that with lowering overhead costs? Can you talk about why your cost of goods sold was so low in the context of rising raw material costs?.

Jeff, it’s Vince again, Jeff. It was the latter. We did see an increase in raw material costs, as Michael touched upon earlier. We did have in response to that very good cost management of our manufacturing costs. And that was supplemented by higher volumes, which allowed us to capitalize on those higher volumes and the throughput at our facilities..

The next question will come 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?.

Hi, Mehul..

Hi. Going back to the question on inflation.

Given your activity on the pricing side, do you think, you’ll be able to be at least price cost neutral or even positive for the full year 2017 just based on current raw material backdrop as we see it right now?.

Well, our guidance earlier in the year was that we would be negative price minus raw materials for Q1, Q2 and positive Q3, Q4. In order to make that happen, we’re going to have to work harder and collaboratively with our customers to achieve our previously announced price increases.

But at this point in time, we’re still positive that we’re going to have a net positive. So we haven’t given up on that, but we don’t plan on it..

Okay, great.

And then, in terms of the capital deployment of $2.5 billion to $3.5 billion for 2017 and 2018, and in the context of your pending AkzoNobel offer, how should we think about layering in the proceeds towards share buybacks et cetera from the timeline standpoint for the remainder of the year?.

Well, again, regard to the year, we typically don’t provide publicly any cadence or pace for share buybacks. We have conviction around the 2.5 billion to 3.5 billion over the two-year period that we typically wouldn’t pace that out for public consumption..

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

Thank you.

Michael, just on margins and performance coatings, they were actually up Q1 year-over-year, but given the peak of raws in Q2, should we expect margins and performance to be down year-over-year in Q2?.

I think they’ll will be down marginally. But obviously, we’re working collaboratively with our customers on price increases. It’s always difficult to forecast when you can start to hit those price increases in your pocket. But we have with relationships with our customers and we’ll continue to work with them in a very straight forward matter..

And just David, if I could add. Again, as Michael said eelier, I just want to remind everybody. We do expect Q2 to be the most difficult comparable from a raw material perspective..

Very good. And Michael, just on marine.

When did the business bottom? And can you actually size what the impact has been from peak to trough?.

Well, the bottom is probably either this quarter or next quarter is my guess. We saw a slight uptick in ship orders for the first time in a long time in Q1. So, I always say that one data point doesn’t make a trend. So, it’s too early to call that. But last quarter, the fourth quarter, Korean ship orders were off 75%, and China ship orders are off 60%.

So that’s not indicative of the world market because obviously they do more of it than anybody else. But, the downturn in some of the other countries would have been less, but it’s still a very significant peak to trough number. .

And David, in terms of context for size for 2016, we said it shaved about half of a turn off of our growth rate, somewhere in the neighborhood of half a term..

The next question will come from Frank Mitsch of Wells Fargo. Please go ahead. .

Hey, good afternoon and good luck to the home team at the Paint C.A.N tonight. Michael, you were talking about the Easter impact and I think you said that there was a benefit of about 1% volumes in performance coatings.

So, we do expect that that’s a pull forward from a Q2 into Q1 and so therefore whatever volumes we see, so we’re going to see a decrement in Q2 is that what you’re signaling there?.

Yes. So, what we had is extra ship days in Q1 and we have less ship days in Q2. And it’s not a straight forth calculation because PPG Comex, actually their two biggest selling parts of the year, Christmas and Easter, so for PPG Comex it’s obviously a benefit in the second quarter and negative in the first quarter.

So, it’s not a straight forward calculation. What we’re trying to tell you is it’s somewhere in that 1% to 2% range..

You talked before about the $100 million productivity program.

And I was wondering if you could provide some color around that, where you stand there and what’s the expectations for the balance of the year?.

My friend Vince will help you..

Thanks, Michael. So, Frank, we gave -- as you know, we announced the restructuring last year. We’re targeting $40 million to $50 million of savings in 2017 from those restructuring actions. We captured a little less than 25, let’s call 20% of that in the first quarter.

We expect that to gradually grow throughout the year and will be hopefully at the middle to upper end of that $40 million to $50 million target..

And that’s also a partly baked into the expectation to the back half for the year to hopefully to see acceleration in EPS growth relative to what you performed in Q1, correct?.

That would be correct..

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

Mike, I’ll remind you, this is Wall Street, so if you give us one data point, we will draw a line and if you give us two, we will draw curve..

Okay, John. Thanks for the adjudication..

You talked about more visibility for the PPG brand, are you talking about using the PPG brand to expand some shelf space and gain share, are you talking more about a super umbrella brand on top of your other brands?.

Well, I don’t know that it’s right for me to lay out our brand strategy as it’s evolving but let me try to get to part of what you’re talking about. We’re going to have more shelf space at the Home Depot, okay. So, that’s a positive. We are -- if you’re in any of our retail partner stores, you will see the PPG logo on our products.

And of course, we’re growing the PPG paints brand in our own store. And as you know, as Mr. Mitch just said, it’s not the Paint C.A.N but it’s PPG paints arena and we’re thrilled to be with the NHL. And now we’re the NHL partner, official paint. So, these are all our efforts to do that.

What I would tell is that long-term we will have to put and we will put more branding into the PPG name to support our retail customers. So, this will be gradual and over time but it is something that we are working on and we talk continuously to our retail partners how important this is to us..

Investment today -- John, I am sorry to interrupt you. These investments today we have seen hopefully gain and traction along with our PPG paint store’s growth..

Do you use the PPG brand in European architectural at all yet?.

No, we do not use it anywhere. The only place outside the U.S. that we are using it as a PPG brand is actually New Zealand. And that’s because the way we bought business in Australia and New Zealand. And actually, it’s doing quite well down there. So, maybe it’s sort of learning to us..

The next question will come from Kevin McCarthy of Vertical Research Partners. Please go ahead..

Yes. Good afternoon. You had a number different price increase announcements in various product lines and geographies in recent months.

If we look at the second quarter, how would you characterize the potential for sequential improvement in price in each of your coating segments and compared to the first quarter? Perhaps you can give us a sense of what you have achieved and what’s on account still there?.

I think Kevin, naturally, we always get better traction and quicker traction in our performance coatings segment. And it’s harder but we do get it eventually in our industrial coatings segment.

As you know our industrial coatings segment has a number of very large, very sophisticated customers that makes it more difficult to get it but they do understand, in all cases at about 70% of our cost of raw materials, so it’s impossible for us to sit here and absorb that kind of cost.

So, we will get it, but what I would say is we get it typically quicker in the performance coatings area. And we will see -- sequentially, we will see both go up but we will see better on the performance coatings side..

And then, as a follow-up on industrial, Michael. You had good sales growth and I thought the commentary sounded constructive, yet your margins were down 70 basis points year-over-year, I suspect the issues what you just alluded to, I think you had minus 1 on prices, I understand that.

Perhaps you could just elaborate more on whether and when you might be able to get above the water line there and get it to zero or plus one..

Kevin, I always give the guidance that it takes six to nine months for the company, so you probably should assume nine to 12 months in that segment, because it’s a little harder to get it. But we will get it. And I just think it takes a little bit longer.

But it is being offset significantly by manufacturing performance and good cost control across Company. So, when you look at it that has helped us a lot..

The next question will be from Michael Sison of Keybank. Please go ahead..

In terms of performance coatings, when you think about the positives you’ve seen thus far and some of the negatives, when do you think some of the growth can outweigh some of the negatives in marine and generate some volume growth this year?.

Well, if you assume that marine touches bottom and starts not having any further negatives, that puts you one or two quarters out on marine. I would tell you that the rest of this segment is in pretty good shape. Aerospace will -- might be flat to slightly up, but we refinish is continuing to do well but distracted driving has helped.

The miles driven has helped. Employment being up helps. All that leads to congestion of growth. So, the rest of the segment is a pretty good shape..

Great. And then, for industrial coatings, you’ve had couple of quarters now of solid volume growth. And industrial production generally has been kind of sluggish and it sounds like we’re kind of seeing things pick up a little bit.

Could you expect that volume growth maybe even get better in the next couple of quarters?.

I’m not putting a big bull’s eye on that. Again, we can see a lot of optimism, but we haven’t seen the order book do that. Our outperformance in that segment has really been driven by technology and also because growth due to performance of the teams. So I guess, I’ll temper your optimism for now and let’s hope that you’re right..

And then globally, Mike, we do -- we have as Michael mentioned in this prepared remarks some very hard comes coming up. We had mid-single-digit growth in a lot of these businesses. Now, we’re starting to lap some of that.

So, again for our numbers in particular, the comps are a little bit harder, but we still feel good about where we sit technology-wise..

The next question will be from Dmitry Silversteyn of Longbow Research. Please go ahead..

Good afternoon. Thanks a lot for taking my call. A lot of my questions have been answered, but I just like follow-up on Mike’s last question on general industrial.

Can you talk a little bit more, provide a little bit more detail either by product types like oil coatings or powder coatings or regions or end markets where sort of one of the good guys, one of the bad guys.

Where you see growth in market share gains and where things are still so sluggish that even with the technology driven market share gains, you’re still a little bit under water year-over-year?.

So, Dmitry, the segments, the sub-segments that are doing well, automotive parts doing well, electronic materials doing well, transportation general finishes, appliances. The encouraging one for us is heavy duty equipment, it’s up. Now that’s a combination of share gain plus that’s coming off the floor. So, I think that’s all good.

The segments that are kind of not doing as well, the extrusion market, the wood market, the coil market, those are the some of the segments that are not as robust.

But globally, we had a really outstanding performance across all the world, I mean whether it’s Asia, Latin America, Europe, our industrial coatings segment team has been doing a outstanding job. And I want to complement them on that..

Okay. Mike, thank you. And then the second question, just sort of in the context of a strong contract to market. You guys saw very strong growth in your stores and your competitor, we had a conference call earlier this morning also mentioned very strong growth.

Why is that not being reflective in the dealer channel? I mean, is the share losses for them so great that they just can’t offset even a mid-single-digit improvement in what looks a do it for me market in the first quarter?.

Well, I think our friends in Cleveland and us provide more value, more locations, more service. And so, when there is a opportunity for another incremental sale, the two of us are probably getting more than our fair share in that segment, because of what we both offer to the marketplace..

Okay.

So, it sounds like it’s as much execution as it is the market that’s driving these stronger sales for company owned stores you, equipment company?.

Correct..

Our next question will come from Laurence Alexander of Jefferies. Please go ahead..

Do you have, with the strength that you’re seeing in orders demand, the number of your markets that are now running in expansionary mode in Europe coming in above the market trends? Do you think if raw materials roll over, you will be able to retain more of that rather than pass it through to the customers?.

Well, we always work collaboratively with our customers, so we don’t try to over recover; we try to be exactly what the market’s going on.

But what I would tell you is that we have expectations for productivity, we’ve expectations for manufacturing efficiency, we have expectations on our sustainability initiatives where we’re less energy consumed, less wage, so there is opportunities to continue to improve the margins.

But on the raw material side, typically we ask for what we’re having to absorb..

And Laurence, if I could add, we’re working on reformulation as we typically do, in an inflationary environment. So, not only are we working with our customers on price and we’re trying to engineer some of this health as well, so we don’t have to go as forcefully to our customers. So, we’re working on the technology side as well..

And can you give a bit more granularity around the strength in automotive refinish volumes in U.S., Canada and Latin America? And particularly, any sense as to whether that -- how sustainable that should be?.

So, the market in the U.S. is the strongest globally; Latin America would be next followed by Europe and Asia Pacific. We do think these are sustainable trends. The expanding car parks is the reality and expanding miles driven is the reality, so some of the other thing I talked about earlier.

So, I think that’s going to continue to and plus in that segment, you will also commercial transport. So, the fact that economy is trending up, you’re going to have more big trucks built, so that’s a positive for us as well..

The next question will come from PJ Juvekar of Citi. Please go ahead..

In 2011, when TiO2 prices spiked last, I think PPG was most aggressive in sort of sourcing TiO2 from China and also reformulating your paint.

Given that you’ve already done that, what can you do know as TiO2 prices begin to go up again?.

Well PJ, I would tell you that that is a never-ending quest for us now. So, we’re constantly looking at how do you reformulate that how do you use other extenders, how do you work with your customer on formulations that reduce the need for TiO2.

So, we are certainly not going to have -- we took out about 10% since 2011, so it’s harder but it’s not impossible..

We don’t think that we are on the same -- anywhere near the same trajectory in the TiO2 market. We are seeing inflation there. That inflation, as you mentioned, was 100% inflation. Again, we are seeing inflation, we need to get priced but it’s not of that same level..

And I would tell you -- I would add PJ that the TiO2 companies I think regret what happened because that took so much demand in the marketplace and my guess is they won’t make that mistake again..

And Michael, when you took the job, organic growth was your priority but the reality is that the economies are not growing. And I would say, your organic growth has been between 1% to 2%.

Is that what’s really driving PPG towards big M&A?.

No, I would not say that’s the case at all. What I would say is acquisitions have historically always made a better return than buying back shares. And so, as you know, this coatings franchise continues to throw off a lot of consistent cash flow. And we consistently integrate companies very well and we can capture those synergies very well.

We have a proven track record of more than 50 acquisitions in the last 10 years. We have a play book that is well understood within the Company. And for us this just makes a perfect sense. So we are going to continue down this path..

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

Thank you. Question on your comments on national retail accounts. You described that qualitatively as mix, but it does sound like that maybe a little bit better than your competitor did.

And I am just wondering are your brand initiatives gaining traction there or are you seeing some type of inventory adjustments that would cause you to be outperforming peers in that category?.

Well, I can’t comment on what my friend said because I had our annual shareholder meetings at the exact same time as they were making their comments. But what I would tell you is our commentary is pretty specific and we would just stay with that..

Jim, we don’t feel there is a performance gap us versus market. Again, we recognize last year as an industry, this was a slower growing channel and this is -- first quarter was a continuation of that, albeit again at the very beginning of the paint season.

We certainly hope and our working with our national customers to help and put that channel up as much as possible, hopefully at or above market. We just haven’t seen that at this point..

And maybe I’ll add to that Jim is what I said earlier was the average median income of the person walking into the big boxes let’s call it $45,000. They can’t all be sold premium paint. And every time you let somebody walk out of those big boxes without a can of paint, when you could have sold them to $20 or $25 can a paint that’s a loss.

And I think that’s where we are trying to encourage all our retail partners is don’t let people walk out. Any by walks in, walks up for that chip rack, make sure they walk out with somebody’s can of paint..

And then, on the aerospace sub segments, you talked about the airplane makers not get interact together. Can you talk a little bit about how you see trends shaping up there? That’s obviously not going to persist forever.

Do you see any kind of modest acceleration happening in the next couple of quarters in aerospace?.

No. We don’t see any change. If you look at it, Boeing’s orders or deliveries, excuse me, were actually down 7 quarter-over-quarter; Airbus’s were up 11, so a net change of 4. Backlog for both of them are in excess of seven or eight years. So, we haven’t seen that acceleration.

I would tell you that the business jet market though is getting -- we got it to get near the bottom. It was the lowest -- 2016 was the lowest since 2004. So, I would say that there is probably likely recovery coming in that market. So that’s probably, and plus, we know military is definitely coming back.

So, you got military, probably going to get better, you got general aviation, you got a lot of miles being flown by the major carriers. So that’s a positive. So there’s actually more positive trends than negative. It’s just hasn’t manifested itself in new planes being built..

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

Hey, guys. This is Matt Gingrich on for Vincent.

I was wondering, if it is possible to quantify the headwind in industrial from the higher transportation and logistics costs?.

Just as a reminder, last year was north of -- well north of 5 -- last year for fourth quarter was well north of 5 million this year and just south to 5 million. And as Michael said in his opening comments, we expect that to dissipate in Q2, so it will be very low-single-digits in Q2..

And then, on the margin profile, the acquisition in industrial, there is a common in your slide deck that you’re saying that they underperformed the segment average.

I was wondering if you expect that going forward or this is more of a one-time dynamic?.

No. Virtually every company we acquire has margins lower than the PPG margins. And virtually every company we buy within a year or two or three, we get up to PPG margins. We have a strong track record in doing that. So, this is no different. So, we bought coatings -- the MetoKote. We’re bringing their margins up.

They had a very nice first quarter, but still below the Company average. We bought Univer. The 50% of Univer, we didn’t know in Italy for architectural coatings we’re bringing that up. We bought the remaining in DEUTEK architectural company, significant improvement; they have a great management team; we’re very thrilled to have them join us.

In fact, they have a long runway with those folks. They’re talented people. And so, this is no different than we’ve seen anywhere else. Acquire, improve, get the Company average or exceed..

So those acquisitions, if I can add, again, the management team at MetoKote remains in place. As Michael mentioned, management team at DEUTEK remains in place. So, we’re very pleased to have these people as part of our organization..

Great.

So gradual improvement, but still lagging segment average to the balance of the year likely?.

Certainly for the balance for this year. Yes..

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

Yes, thanks. A question on your heat map on slide five. You’ve got very divergent trends in automotive and refinish, you’re growing above and expanding market in OEM, you’re growing below at declining markets. I’m just talking about sustainability of those trends and specifically what’s happening in automotive OEM.

And then the refinish growth, is that sort of distribution driven that you’re getting share at MSOs instead of taking share from second tier producers or is it more product driven?.

Well, in refinish, we’re definitely gaining share. There is two of it that are consistently gaining share in that market. As far as the dichotomy between growth rate, there are two different markets really. So, let’s start with automotive. In the automotive market, we say globally demand builds would be up 1% to 2%, closer to 2%, but it varies by areas.

So, U.S. sales we said plateaued but builds are going to be down marginally. And then in Europe, Western Europe builds are growing that’s continuing, but in I would say in the other parts of Eastern Europe, probably not as robust. Latin America is getting better and China, people always are nervous about China. We remain constructive on China.

January sales were down, February was up, March was up. We think people are going to get used to this tax not being -- tax abatement not being, it’s still the most important thing for people to -- you want to status symbol to own a car in China, so we think demand will continue to grow. India is going to grow more than 7%.

So overall, it’s going to be a solid market, not as good as last year, last year grew more than 3% but overall still a good market..

And Don if you summarize what’s happening our position versus the market generally and the highest growth markets, we’re outperforming the industry and the markets that are shrinking, those are ones where we are not performing; we’re performing at or below industry. So again, we positioned ourselves well in the growing markets..

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

Just to continue on the auto OEM question, you’ve discussed the reasons in past that are driving your below market growth in North America. I’m talking about some of the reallocation of resources to drive growth in other regions, in other faster growing regions. Can you talk so about when you would expect to see U.S.

and Canada get to at market growth, and is there any point in the near future where you could see allocating resources to gain new wins with auto OEM customers and North America?.

Sure, Mike. This is Michael. The way I would think about that is we should start to lap some of these loss of market share in the U.S. late in the third quarter early in the fourth quarter. And then, so first quarter of next year, we should start outperforming industry in the U.S. and Canada.

And given the fact that we already outperformed the other three regions and globally, we outperformed, this will put us back on a very, very solid track on the automotive market globally..

And then, I wanted to also ask just on the MetoKote business, you referenced that as a business that was below average margin but starting to improve. Can you just talk about how that integration process is going? I know that that coating services business is a little bit of a step out for your guys.

How is that business model working for you and for your customers?.

It’s a very small business when you look at it versus all the PPG. There is sales in the first quarter up 11% year-over-year. So, I would say it’s performing well, margins were up year over year. I would tell you that they have had two significant wins, they had a nice win with somebody in the electric vehicle market.

That was a very good win, and they also had some nice equipment sales. And the beauty about the equipment sales is that they were able to bring our industrial coatings team along with them and provide a total services solution to this customer.

And we have another large customer in the industrial space that wants to get out of the painting parts business and they asked us if we would combine our traditional paint business with the coating services. So, I think there’s more opportunities to integrate this and become a seamless part of our product offering to our customers..

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

Great, thanks guys. So, I just had a question on general industrial. Are you guys seeing trends, you talked about heavy duty improving in some of the other markets. Are you guys seeing a noticeable uptick incrementally sequentially from Q4 to Q1, do you expect that to continue through the year and maybe just parse it out by region..

So, Arun, as Michael mentioned this sector is coming really off the floor. So, we were seeing a gradual recovery. We would hope at some point if the -- we talk about lot of infrastructure, politically if there’s a benefit there that will come slowly.

By region, we didn’t see the same significant drop in Asia that we did see in the US and European region, couple of years ago. So that has been a little more steady. And again, in Europe we’re mirroring the US but not in the same volatile pattern of a couple of years ago..

Great, thanks. And just on the M&A front. You talked about still pursuing other potential targets in your pipeline. Could you characterize how those -- how large those are and if there’s any benefits to doing small bolt-ons versus continuing to pursue a large acquisition like Akzo? Thanks..

I’ll take that. We remain interested in consolidating the space we have. We’ve had and continue to have active discussions. The pipeline I think as people realize the past 18 months remains active and we’re certainly interested and continuing dialogue with all the parties.

And as we did last year with Medico DEUTEK, as Michael mentioned, et cetera, have room in our portfolio when these enhance shareholder value..

And just one more if I may. Would you be able to characterize like how much of your portfolio you think is market dependent improving? In the past you said that Europe recovery would be very beneficial to you guys, is that still the case.

Any other comments around what you guys are looking for to really start to see your organic volume growth improve? Thanks..

I would say the European performance, any time we have new sales or higher sales in Europe, we drop 30% to 40% of that incrementally to the bottom line. That’s our best place, If we’re going to choose the a place that grows that would be it. The US would be next and then Asia, because we aren’t sold out in Asia.

That’s the place that we continue to add capacity. So preferentially, we’re very strong in Europe but we’re not ashamed to take growth anywhere and the teams are expected to grow everywhere in and around the world..

And ladies and gentlemen that concludes our question-and-answer session. I would like to hand the conference back over to Scott Minder for his closing comments..

Once again, I’d like to thank everyone for their time and interest in PPG. If you have any further questions, please contact our investor relations department. This concludes our first quarter 2017 earnings call..

Thank you. Ladies and gentlemen, at this time, the conference has concluded. Thank you for attending today’s presentation. You may now disconnect your lines..