Green shoots spring in eastern Europe, strong interest in PPG’s architectural division – CEO

SAO PAULO (ICIS)–Amid Europe’s industrial crisis, green shots have started to appear in eastern countries, giving hopes the downturn in the region has bottomed out, the CEO at US paints and coatings major PPG said on Friday.

Tim Knavish added after PPG announced it was seeking to divest its US and Canada architectural operations, it has recorded more interest from potential buyers than expected, but “no numbers have hit our desk yet”.

Late on Thursday, PPG said its sales fell in the first quarter as European demand continued to be in the doldrums, but its earnings surged as input costs had fallen considerably.

The company expects an overall improvement in industrial production globally in the second half of 2024.

“We just have to get through the second quarter,” the CEO said, speaking to reporters and chemical equity analysts on Friday.

As a paints and coatings producer, PPG’s operations are petrochemicals-intensive. Among many others, one of its key raw materials is titanium dioxide (TiO2).

COMING OUT OF THE DOWNTURN
While Europe’s industrial downturn has been the steepest as the region took the largest hit from sharply higher natural gas prices after the Russian invasion of Ukraine, the US performance has been lacklustre.

Amid overall economic growth, manufacturing has been the sick man of the mix for many months. That may have started to turn in March, with official and private bodies’ statistics showing growth in US manufacturing at last, and manufacturers optimistic for the months ahead.

“We expect our sales volumes to continue recovering for the remainder of 2024…. We are only 19 days into the month, that’s only a sixth of the second quarter, but we are comfortable with the order book and shipments so far this quarter,” said Knavish.

“We have been speaking to our key end-users in the past weeks and they are all saying the same thing about Q1 and Q2, but we are all expecting a return to more normal growth rates in H2 – we just have to get through Q2.”

In Europe, however, some key markets such as France and the Nordics have yet to start any meaningful recovery, with sales there slower than the company was expecting, the CEO said.

Despite this, in the eastern economies – with more emerging markets characteristics than the European western economies – there has been a notable improvement.

“We are seeing green shoots in the east, where we have a strong position, so that gives optimism. We are also seeing that the deco [decorating] segment in those hard-hit countries [in Europe] is also bouncing back from the bottom, so we don’t expect it to get worse,” said Knavish.

“The recoveries in the east, they are not the largest individually but when you add them together, they are an important part of our portfolio, countries such as Poland, Romania, Hungary or Czechia: we do see some green shots there.”

However, he added that they were not “naive enough” to believe there will be a V shape recovery in Europe.

ARCHITECTURAL DIVESTMENT
At the end of February, PPG announced it was seeking alternatives for its US and Canada architectural coatings business, which has been a drag on profits and sales volumes.

The company said at the time it would study whether the division could be divested, be set as a standalone entity, or be part of a joint venture.

The CEO did not give much away on Friday, saying it was early on, but the company was positively surprised with the level of interest, adding there had been “minimal if any” disruption to the daily operations of the division since the announcement.

“There is a lot of chatter [about this]. But we are engaging key customers, employees, and engaging our owners. We expected strong interest, because of the strength of the brands and assets … The interest has been even higher than what we expected. We feel good right now,” said Knavish.

“Until the numbers start coming in, and we can look at what is best for shareholder value creation, it is difficult to say [what the likely outcome will be]. We’ll have a much better view in another quarter or so.”

INDIA TAKING OFF
Knavish ended with an interesting reflection about India. Indians are about to start what is famously the largest democratic process in the world, which will end in June.

Current Prime Minister Narendra Modi is widely expected to win a resounding third term in the general election, despite many analysts warning about increasing tensions between Hindus and Muslims, who are India’s largest minority, with 175 million people.

But the key to Modi’s expected victory may well be all about the economy.

“I have been going to India for 25 years. There has always been the talk of higher civil engineering works, higher industrial production [but it never seemed to come to fruition],” said the CEO.

“Now, all that is happening, and the development is very noticeable for someone who has been going there regularly.”

Front page picture: PPG’s headquarters in Pittsburgh, in the US state of Pennsylvania
Source: PPG

Additional reporting by Deniz Koray