Good morning. My name is Jason. I will be your conference operator today. At this time, I would like to welcome everyone to the PPG Q3 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star, then two. To allow everyone an opportunity to ask questions, the company requests that each analyst ask only one question. I would now like to turn the conference over to John Bruno. You may begin your conference.
Thank you, Jason, and good morning, everyone. We appreciate your continued interest in PPG and welcome you to our Q3 2021 financial results conference call. Joining me on the call from PPG are Michael McGarry, Chairman and Chief Executive Officer, and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Wednesday, October 20th, 2021. 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 brief opening comments Michael will make shortly. Following management's perspective on the company's results for the quarter, we will move to a Q&A session.
Both the prepared commentary and 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's 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. Let me introduce PPG Chairman and CEO, Michael McGarry.
Thank you, John, and good morning, everyone. I would like to welcome you to our Q3 2021 earnings call. I will provide some comments to supplement the detailed financial results we released last evening. For the Q3, we achieved record net sales of nearly $4.4 billion, and our adjusted earnings per diluted share from continuing operations were $1.69. As we communicated in early September, our sales and adjusted EPS were significantly impacted by worsening supply chain disruptions and increasing raw material cost inflation. Our raw material costs in the quarter inflated by about 25% year-over-year. For context, this is about three times higher than any previous coatings raw material inflation peak in recent history. We're also experiencing elevated logistics costs and are incurring increased manufacturing costs due to the sporadic nature of these outages.
Commercially, we have taken significant mitigation efforts due to the high level of inflation through rapid implementation of structural selling price increases. In aggregate, our selling price realization is about 6%, with more than 6% price realization in our industrial reporting segment. Our price capture pace is much faster than previous inflationary cycles, and we have further pricing initiatives underway. Coming into the quarter, we expected that supply chain and customer production disruptions would impact our sales by about $150 million. However, this actual impact was more than $350 million. Additionally, this prevented us from completely fulfilling our strong order books and further depleted retail inventory in many of our end-use markets. We expect much of this demand will be deferred into 2022, and in particular, these current conditions will elongate the global automotive OEM recovery.
To put the automotive OEM situation in perspective, U.S. dealer inventory is at record historical lows in the mid 20-day range. In 2021, global production in this industry is expected to be about 20% below prior peak levels. Despite the current challenges, several of our businesses, including our automotive refinish, protective and marine, and packaging coatings, delivered strong above-market performance driven by our strong service capabilities and advantage technology. Our PPG Comex business achieved record Q3 sales with year-over-year organic sales growth of more than 10%. In addition, our U.S. architectural coatings business delivered about 10% same store sales growth as we continue to expand our customer base with many new wins and increase our digital sales as a percentage of our total sales base.
More generally, we continue to experience improving trade painter demand globally and architectural DIY coating sales return closer to 2019 levels after notable growth last year driven by the stay-at-home impacts. We remain focused on cost management, which is evidenced by our SG&A as a percent of sales being 100 basis points lower than the Q3 2020. This is being supported by our ongoing execution on our structural cost savings programs as we delivered an incremental $35 million of savings in the Q3. We continue to target and on track for a full year 2021 savings of about $135 million. In the quarter, we also continued to make good progress integrating our five recent acquisitions, contributing to our overall earnings for the quarter. Our two larger acquisitions, Tikkurila and Ennis-Flint, delivered good top-line results despite the challenging supply constraints.
We continue to expect them to deliver an aggregate of $25 million of synergies for the full year of 2021. We once again delivered strong operating cash flow during the quarter and had about $1.3 billion of cash and cash equivalents at the quarter end, including sequential reduction of our net debt by about $400 million. This was supported by our continuing strong working capital management as we maintain our positive step change improvement achieved last year and are at multi-year lows on a percentage of sales basis. While we will continue to evaluate accretive deals in our M&A pipeline, we are initiating stock repurchases in the Q4 and will continue to focus on debt reduction. As a reminder, based on the seasonality of our businesses, the Q4 is typically our strongest cash generation quarter of the year.
Also during the quarter, in support of further enhancing our ESG program, we were happy to announce an agreement with Constellation Energy to power our Carrollton, Texas, manufacturing facility with 100% renewable solar energy. We're also working on our very first-ever diversity report and developing science-based climate targets, both of which we will communicate in 2022. Equally important is PPG's market-leading sustainable products continue to enable our customers to meet their respective sustainability goals. We will continue to provide updates on these initiatives in subsequent quarters. In addition, I'm extremely pleased to announce that yesterday, PPG earned three R&D 100 Awards for 2021. The R&D World Magazine honors the 100 most innovative technologies and services over the past year with the R&D 100 Awards.
Even more importantly, two of the three innovations that we were recognized are growth initiatives in electric vehicles, including BFP-SE battery fire protection coating, which protects the vehicle occupants from fire and mitigates thermal runaway events, plus Envirocron Extreme Protection thermally conductive dielectric powder for battery packs, providing dielectric protection and thermal conductivity. Our dielectric powder has already been commercialized by a leading EV maker. Our battery fire protection product will launch in 2022 by one of the world's largest car makers. Moving to our outlook, we are continuing to evidence solid demand in aggregate. Many of our customers continue to indicate that their order books are at high levels and have lower than normal inventory levels. In the near term, we anticipate only modest improvements to the supply disruptions that we've been experiencing.
Our estimate is that our sales are expected to be unfavorably impacted by about $250 million-$300 million in the Q4, both from the semiconductor chip shortage issue and chronic supplier operational capabilities. Recent production curtailments in China may add incremental pressures to availability and inflation, and we expect our inflation to approach 30% compared to the Q4 of 2020. As a result, all our businesses are securing additional selling price increases, and now we expect to fully offset raw material cost inflation in the early part of 2022. We continue to strongly believe there is sufficient capacity available in our supply chain as operating conditions continue to normalize. Absent any further disruption, we expect supply chains to operate more normally by year's end, supported by normal seasonality trends.
To provide further assistance and assurance of more consistent supply going forward, we are rapidly qualifying additional regional and global commodity suppliers across a variety of our key raw material procurement groupings. We expect these increases in product availability, coupled with continued improvement in the existing supply chain, will provide ample supply beginning early in 2022. While the current environment remains difficult to predict, I remain very optimistic about our specific growth catalysts for 2022. Specifically, we expect continued recovery in automotive refinish, OEM, and aerospace coatings, which collectively account for about 40% of our pre-pandemic sales, where we have broad global businesses supported by advanced technologies. We expect a measurable rebuild of inventories in many of our end-use markets. Specific to PPG is year-over-year earnings growth in 2022 due to further synergy capture from our recent acquisitions.
In closing, these continue to be dynamic times, but thanks to our more than 50,000 employees around the world, we are well positioned today and in the future. Their dedication and commitment to making it happen are reasons why our customers, our communities, and our many stakeholders can count on us to protect and beautify the world. Thank you for your continued confidence in PPG. This concludes our prepared remarks. Now, Jason, would you please open the line for questions?
Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Chris Parkinson from Mizuho. Please go ahead.
Great. Thank you very much. Michael, obviously, there's been a lot going on in the industry, both in terms of raw material inflation as well as input shortages. If we start there, particularly on the shortages aspect of it, please offer your general views as we approach 2022. What's changed in the past 12 months? What offers confidence? Then also, are there any differences on how these variables are affecting results at the segment level? Anything would be greatly appreciated. Thank you.
Well, Chris, I would say starting with the segment levels, the most impacted, of course, are architectural, our traffic solutions business, our automotive OEM, and quite surprisingly, our industrial coatings, because there are a lot more chips than people realize in some of these things like appliances and other electronic materials. What I see, though, is best interest to continue to sort out their supply chains. Seasonally, weak Q4 should give them adequate time to do that. The flip side is we have an extremely large backlog of demand right now. Anything that they can make in the Q4, we're going to ship. We feel very good about that. As you know, we've been a little bit more pessimistic and probably right about the supply chain issues. We have put in, like we said, challenges in the Q4.
That's very helpful. Just kind of staying on the topic, it seems demand is fairly strong and kind of building into 2022, and the supply chain disruptions, obviously, are creating a lot of noise in the H2. When you take a step back perhaps on the longevity into 2023, in terms of the volume recovery aspects for auto refinish and aero, and then also perhaps touch on the sustainability of momentum in both general industrial and packaging. Thank you very much.
Okay. That's a mouthful. Clearly, if you look at the inventory in the U.S., we're down typical is. Inventories in China are less than one month as well. They're probably in the 25-day range, so that's 15 days less than they typically have. Europe has not been able to supplement what they need. When you think about fleets, not just rental fleets, but fleets in general, they're short as well. There's significant OEM demand out there. I would also tell you from the refinish side, we can always tell when the lockdown's in in every country, because driving comes up and collisions come up and demand comes up, also being a strong positive. I guess, finally, I would tell you from aerospace, we see strong orders. Once you start to see some international effect, Airbus and Boeing will get back to building the bigger planes.
MRO is improving monthly. Now that Europe is getting a little bit more open, we expect MRO to improve even better. Our catalysts for 2022 are strong, and if you then start building 787s on top of that, then our catalysts for 2023 get even better.
The next question comes from Ghansham Panjabi from Baird. Please go ahead.
Thank you. Good morning, everybody. I guess, sort of stepping back, China was first in, first out from COVID, also led the global economic recovery over the past year. Subsequently, what are you seeing in the region on a real-time basis at current? Second, how do you see China evolving over the next couple of quarters? I guess just more broadly, Michael, how are you thinking about the current inflation cycle impacting your expected recovery over the next couple of years, given that consumers will ultimately have to bear all these massive cost increases? Thank you.
Ghansham, let's start with China first. Maybe, I think you're aware of this, but maybe some of the other folks on the call aren't. Our plants typically in China are running two shifts a day, most of them. Not all of them run 3. The dual control issue that's happening in China, where they're trying to reduce the amount of energy consumed as well as the energy per unit, we're in a very good position to be able to run off hours and consume the cheaper energy off hours. That helps us from that standpoint. Industrial demand is down in China right now, but it's as much from lack of raw materials as it is from demand. You know, we're not very big, in fact, I would say almost negligible in the project market for architectural.
The challenges in that market are really not going to hurt us from that standpoint. Automotive business are all in good shape over there. I feel good about China, both short term and long term, and I think we have the team that can help us manage through the challenges that are over there. When I think about the higher prices today, I start first with $80 historically is not a high number. It would be what I would say is, which it's only marginally higher. From a structural cost perspective, I think our consumers are going to be able to demand, so I'm not worried about that.
Our next question comes from John Roberts from UBS. Please go ahead.
Thank you. The price increases are so large and happening so quickly, we're getting different companies. Maybe comment a little bit on where the differences are between you and some of your key peers. Is it just timing differences, Michael, that's resulting in these different prices?
John, let me just start with the basic way it works. We report peer price, and we report it for all our businesses. When you look at the business mix, that's one thing to take into account. Mix by geography. In a geography that has hyperinflation, that's going to impact you. More importantly for us, we are on our 18th quarter in a row increases on top of increases. One way you might think about this is whether or not somebody might be trying to catch up to where we are. I think that's probably the most important thing. The other thing I would say is make sure you look at inflation reported as well as margins. For us, the ultimate end goal is margins, and I think our procurement team's doing a great job.
We have hired people to help us qualify additional raw materials from that standpoint. We're in a pretty good shape, I think, competition-wise.
The next question comes from Bob Koort from Goldman Sachs. Please go ahead.
Thanks, Michael. Curious, you mentioned that the supply chain issues, they could moderate as you go through the quarter, but obviously still some elevation in run rate on the cost side. Are you starting to see some force majeures lessened, or what is it that you're seeing that gives you some hope that maybe it improves through the quarters? There's some tangible anecdotes you're already seeing?
Well, Bob, the way I would answer that question is, in Q1 we had 95 force majeures. That was all early, right? Then we only had two in quarter two, then we had 13 new ones added in quarter three due to all the Ida issues. There's been only one added in the Q4. The pace of force majeures has improved. At these commodity levels, I know our suppliers, and I've talked to a number of them, are focused on smoothing out the supply chain. What I would tell you is they know we can sell. They know we're going to continue to consolidate the industry. They know we're going to win. They've been out there protecting PPG as much as they can within the limits of the force majeures.
I see these force majeures starting to decline in the Q4. I think we're going to be in a much, much better place starting early 2022.
Bob, Mike, this is Vince. Michael mentioned in the opening comments, seasonally, we see a significant downturn in demand for commodity raw materials. This will allow them to do some catch up in terms of maintenance, in terms of rebuilding inventory. We do feel that has a tangible benefit as well entering 2022.
The next question comes from Michael Sison from Wells Fargo. Please go ahead.
Hey, guys. When I add up the revenue impacts on supply disruptions, it looks like it's nearing $1 billion. Just curious how do you think you'll get that back over time, and how long do you think it'll take to sort of get the raw materials in place to do that? Curious how confident you are about Halloween?
The reference, is that what?
Mike, it's Vince. I think your math's accurate. Two big components here. One, as Michael mentioned, the semiconductor chip really impacting our automotive and, to a lesser degree, our industrial business. We expect that to continue to rectify over the next couple of quarters. We would hope in the back half of improvement now through the H1 of 2022, and then more normalcy in the back half of 2022. The other side of the equation is the commodity supplier force majeures that Michael just alluded to. We're expecting that to largely. We will be able to supply our customers a more important piece of the equation that's missing here. Those shortages we're seeing in 2021 will go back into our of 2022. We're confident the demand's there. The runnability issues and supply constraints around chips should be resolved in the coming quarters.
Yeah. I guess, Mike, I'd finish by saying that it won't surprise us to see you in a black .
Our next question comes from Steven Byrne from Bank of America. Please go ahead.
Yes, thank you. About a decade ago, you had a string of four or five quarters with mid-single-digit price increases, here you just put up a six percenter. You have quite a different situation here than you do on whether something of that same trend might be repeatable with a string of mid-single-digit price increases, could they potentially have a 25% year-over-year hit to 30% in this Q4, you're talking about a 2022, that those price increases are going to get pushed even higher?
Steven, we tried to convey that in the slides that we published last night. We're expecting to have a higher increase in the Q4 than we did in the Q3. I would say that is essentially already in place. Additional price increases as well. The magnitude of the increases are historic, but so is the amount of inflation. Our teams feel very good about this. Our customers are well aware of what's going on. They also need challenges. They're also facing raw material challenges. They buy a number of the things that we buy, maybe not to the level that we do. They understand it and raw materials moderate. This will be a significant catalyst for continued earnings growth going forward.
Our next question comes from John McNulty from BMO. Please go ahead.
Taking my question, maybe just another one on the price versus raws dynamic catch up in early 2022. Is that all on the premise of pricing, or do you expect some raw material relief as you start to get into the Q1 or so of 2022? I guess somewhat related to that, you've got about $500 million worth of sales tied to M&A in the Q3. I guess sometimes it takes a little bit of time to get the pricing wheel of an acquired asset working. I guess, can you speak to the price businesses that you acquired, and if there's maybe a catch-up phase of that as we look to 2022? Thanks a lot.
Yeah, John, I'll take the first part of the question. I'll let Michael handle the second part on acquisitions. We're in a position now where we believe that the inflation levels are cresting. We have 30% targeted inflation in Q4. The supply constraints, as we alluded to earlier, we think are going to abate somewhat. Again, our goal is to get pricing up to offset this high level of inflation. Some of this will moderate, and we are starting to see some signs of moderation. Again, given the tightness of the supply chain right now, it's not coming through in absolute percentages. We are starting to see in certain raw materials some abating. For us, though, I think what's most important is we've gone after structural price increases.
The vast majority of the pricing that Michael alluded to, the 6% in Q3, almost all of that is structural in nature. We're changing unit pricing as opposed to surcharges. We think that's proper to do. Those structural price increases will remain as we head into 2022 and throughout the duration of 2022.
John, with regards to the acquisitions, Ennis-Flint, the highest they'd ever achieved price prior to our acquisition was 2%. They did not have what I would call a structured program to analyze what was going on and a structured program to get price increases out in a real-time basis. We have significantly improved that, and we have a PPG legacy leader running that business now, and we are really excited about what that future holds. Myself and Tim Knavish were in Europe within days of when Tikkurila closed. That was the first thing on the agenda was pricing. We were much further ahead in price increase. We'd already done our second price increase in architectural Europe. Prior to us acquiring Tikkurila, they were on their first increase. They are now catching up.
They have put in place new processes that will allow them to better process not just raw material inflation, but also the value creation that we bring to the market with our new technology. I feel very comfortable that we're on top of that, and we are in a good position, not only with the increases we've announced for the Q4 with the legacy Tikkurila products, but also the Q1.
Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.
Good morning. Given all the dislocations in the external environment that we've been discussing, it struck me that your Q4 EPS range was quite narrow at ±$0.03. In that context, I was wondering if you could talk about material upside or downside risks, if it turns out that you did materially better or worse when we see the results in January. What do you think the potential drivers of those variances could be based on what you see today?
Yeah, Kevin, this is Vince. Due to the way the calendar fell this year, we're 20 days, three weeks into the quarter. October is a very large month for most coatings companies in the Q4, just due to the seasonality. We've got a good read on October. We've the ability to supply. Just given the size of the first month plus as it weighs on the quarter, we have some level of confidence. That being said, things that could push it up or down. We are able to manufacture for the Q4. As you alluded to, Kevin, there could be some things out there that could suppress the ability to get raw materials like logistics, and that would be a negative, but we think all the other variables we have a fairly good handle on.
The next question comes from Laurent Favre from Exane BNPP. Please go ahead.
Yes, good morning. I've got a question on capital allocation. Nippon just announced the Cromology deal this week. Mike, I think you just talked about resuming buybacks in Q4. I was wondering, should we assume that the M&A pipeline is getting thin? Can you give us a sense of the overall envelope for the buyback you've got in mind for the next 12 months?
Yeah, Laurent. First of all, I would not say the M&A pipeline has slowed down. In fact, I would tell you that has picked up because of the high prices that have been paid. There's more interest out there. What we said about the buyback is, first, we think PPG is undervalued. We're going to buy some shares back. We're in good shape for acquisitions. I don't think it's any.
The next question is from Aziza Gazieva from Fermium Research. Please go ahead.
Hi, guys. You're calling for 30% inflation in the Q4, but could you put an estimate on your current read for inflation 2021? Vince mentioned that some of the raws are abating, but which products are still a particular concern into 2022? Thank you.
Yeah. I'll handle the macro, and I'll let Michael talk about some specifics. Again, when we look at the raw material back, we'll have some year-over-year. Didn't have the level of inflation in Q1 this year, excuse me. There'll be some year-over-year comparisons. Michael, please talk to some specifics, please.
Yeah. Aziza, I would tell you that the three items that I'm paying particular attention to, epoxies, emulsions, and isocyanates. Emulsions in particular, it was impacted by Ida as well, because a couple of raw material suppliers there were impacted, down more than a month. Once they're back to normal rates, some of the stress on pricing, I think, will start to come back down. That's one. The epoxy, especially in China, I'm anticipating that they will moderate the pricing demands as we get into the Q4 with seasonality, and that will provide some relief. From an isocyanates, we did have some force majeures in that area that will be coming off, I think, in the very near term. Those are the ones I'm paying attention to.
The next question is from Arun Viswanathan from RBC Capital Markets. Please go ahead.
Great. Thanks for taking my question. Just a two-part question here. First on margins, just wondering, obviously there's a lot of volatility, and it's going to depend on price capture versus raws, but how should we think about margin recovery next year? Is there anything special that you have as far as cost reduction buckets or anything that would be specific that you could call out? Secondly, I was just curious on your comments on EVs and beverage cans, two areas that have been robust. Have those been impacted? I know that you called out some supply chain disruptions there, but have those been disrupted from a structural standpoint on demand, or is it just transitory? Thanks.
Yeah, Arun. I'll handle the margin question, and I'll let Michael do the commercial side here. If you look at what we're projecting, we'll give obviously more numbers out in this call. We do have an active restructuring program where 2021 savings on that are in the $130 million range. We would expect additional savings in 2022 against the actions that we have previously outlined for that. Again, we'll give a number on that in January. We do have synergy 12- 15 months after an acquisition. Structural synergies. Again, we'll give a number out in January. Those are two elements to the margin expansion opportunities on the cost base.
Obviously saw how Tesla performed last, I would tell you virtually all of the global guys are very dead serious about improving their EV at a faster rate than what the current projections are. I don't know if you saw it yesterday, one of the largest EV producers in China, even though the government says they want a 20% by 2025, this particular company said they expect it to be 35% by 2025. The momentum in EV continues to build. From the beverages, that is going to continue to be strong. We're up double digits in beverage, I've actually lost count of the number of plants. I think there's either 13 or 14 new plants that are in the process of being built. Those new plants will need a lot of coatings. We are winning more than our fair share in that beverage space.
I anticipate beverage to continue to be strong as people shift away from single-use plastic into recyclable beverage containers. I'm looking for that to be a long-term sustainable play.
Our next question comes from David Begleiter from Deutsche Bank. Please go ahead.
Hi, this is David Huang here for Dave. Can you talk about why you're below the IHS AutoView forecast in Q4, and how much of an EPS impact is from that lower forecast?
I think we've come out ahead in terms of accuracy. We do see things improving. We just don't see the velocity of improvement that IHS is forecasting for the Q4. We see more of a gradual recovery into 2022.
The next question comes from Kevin Hocevar from Northcoast Research. Please go ahead.
Hey, good morning, everybody. You mentioned DIY paint demanding back to 2019 type levels. Do you think that the underlying demand is back to 2019 for DIY paint, or do you think that the supply chain issues are what's holding that back, or has it just been because things were so robust, the pull forward of demand? I am curious your thoughts there and how you see it going forward.
Back toward 2019. It's still above it. Actually, if you go into a Home Depot, you'll see how bare the shelves are. There's just not enough paint out there, and that is a challenge for our partners. Menards certainly would like to have a lot more paint than they're getting right now. We're working hard to try to meet our big box customer needs. I actually do think that there's more upward potential there as the supply chain normalizes.
Our next question comes from Mike Harrison from Seaport Research Partners. Please go ahead.
Hi, good morning. Was wondering if you could give us an update on the competitive environment within the auto OEM space. All of you as suppliers are hurting, the customers are hurting. Do you see any share shift going on in this environment? Can you maybe talk about industry pricing discipline into that auto OEM coatings market? Thanks.
Yeah. Mike, I would tell you that the discipline is better in Europe, in the U.S., and Latin America, and it's still a little bit challenged in Asia. That doesn't surprise us. China is historically a difficult place. There's more than 80 car guys in Asia, there's all the global plus all the locals. There's a little bit more competitive tension. What I would tell you is, for us, any time that we might lose quickly as they roll out new programs, because they have to put the finest technology out there on the newest programs to compete in that market, because it's hyper-competitive from an appearance and performance standpoint. I'm not worried too much about that. We've been pushing the teams to continue to raise price appropriately, and that's what we're doing.
The next question comes from Steve Haynes from Morgan Stanley. Please go ahead.
Hey, thanks for taking my question. In the industrial segment, by end market, it seems like packaging was potentially pretty strong, maybe double digits. Just any additional color there would be helpful.
I want to get into that level of detail. Posted more than 6% in the industrial. We had strong positive price in automotive, industrial, as well as packaging. These conversations with our customers are one-on-one, and I think that's the way it should remain.
Our next question comes from Duffy Fischer from Barclays. Please go ahead.
Yeah. Good morning, guys. Maybe three questions, if I could sneak it in. On your one chart that you showed the acquisitions, you showed the seasonality of the revenue. Can you talk about the seasonality of the margins off that chart and what that would look like? On your chart six, where you break out kind of the 60% PPG, 40% PPG that has struggled volumetrically, what is the difference in margins between those two buckets? The 40% that's been lower on volumes, has it been harder to get price?
In first question, well, I'll start with the 60/40 question, because I think that's more relevant right now. If you look at the 60/40 question, the 40% of the businesses that are down, let's call it low teens in terms of volume versus 2019. These are very technology-rich businesses. They typically command the value for the technology. We've seen good pricing as evidenced by the segment pricing. Two of these businesses fall in performance. Performance pricing's up 6%. They're very big businesses, they're going to have an impact on the segment. The automotive business is our biggest business in industrial, it's going to have, again, an outsized impact on the aggregate pricing. Again, we're capturing pricing collectively across the portfolio, and it's not differential based on the 60/40.
Yeah, I would say, Duffy, listen.
The fact that they're down has not prevented us from getting price. As you know, in refinish, we are a historically an annual price. This year, we've had more than one price increase in refinish. That has not prevented it. Automotive clearly has not prevented it. The automotive guys would like every kilo of coating that we can provide to them. They would definitely would like to get more. Then from the aerospace side, as you know, it's a very technology-driven business, and it's a very spec-driven business. Our ability to get price on the MRO side is actually pretty good. That has not been impacted either. When I look at the catalyst for 2022, these businesses are certainly going to be a strong contributor to the increase in earnings for next year.
Yeah. In terms of the seasonality from the acquisitions, we did put in the appendix of the materials we distributed last evening, the sales seasonality. You would expect, and it's accurate, that the earnings seasonality is even more pronounced. These are businesses that have a fixed cost base, especially architectural. You do get more leverage on the peak sales quarters, and there's certainly less leverage on the sales quarters on either end of the peak. Definitely more pronounced earnings impact in Q1 and Q4. We'll see the reciprocal of that, Duffy, in Q2 next year. We didn't have Tikkurila for the vast portion of Q2 2021, and in Q2 2022, we'll see that positive leverage.
The next question comes from Jaideep Pandya from On Field Investment Research. Please go ahead.
Thanks. I have two questions. Firstly, on growth, actually. When you think about the European business in Deco and compare it to some of the other periphery businesses like the adhesives industry or construction, sort of building materials, light building materials industry, and think in the context of the green wave and the renovation wave that will kick into Europe as we speak for the next few years. Do you think that paint actually will slightly undergrow because of the higher penetration for a lot of these materials in the sort of increased insulation demand? That's my first question. The second question is really around raw materials.
If you take a step back, I guess, you guys have lost probably 15%-20% of supply because of Ida and Uri and all the other issues across your basket this year. Fundamentally speaking, do you think your suppliers have invested enough in things like epoxy, acrylic acid, to support the growth that your industry is seeing? In other words, do you think that even if supply normalizes, utilization in these products will remain high, and therefore you will always remain a bit susceptible to a storm or two? Thanks a lot.
Hey, Jaideep, this is Michael. I'll take the first one, which is the suppliers. I think they're clearly hampered this year because I think in the pandemic, they did not do the required maintenance. They postponed some things. They got caught short by the recovery. As they postpone maintenance or underspent, that has impacted their ability to deliver what we wanted. I would tell you that obviously, they're all making very good money right now, and they're all interested in getting their reliability up, at or above where they were pre-2019. I anticipate this to get better. I'll let Vince cover the adhesives and sealants versus paint for your question.
Yeah. I think when we just think about ESG, which I think was the heart of your question, typically these act, and the aftermarkets typically opportunities to reduce the coatings industry, the adhesives industry. Every time there's been a technology change, we're seeing it in the EVs. We typically get more, and we typically are able to provide the functionality needed in order for them to make technology improvements to cover whatever that technology change is. In this case, it's better environmental performance.
The next question comes from Edlain Rodriguez from Jefferies. Please go ahead.
Thank you. Good morning, guys. Just one quick question on raw materials. Again, apologies if you already addressed that. In terms of the raw materials this quarter, was it mostly because of the hurricanes or was it more broad-based in all the different regions?
Edlain, what I'd tell you is the worst was in the U.S., okay? That was obviously challenged with our Hurricane Ida. Over the quarter was Europe, because they do buy some things from the U.S., so that has impacted especially our architectural business. Impacted last, but somewhat meaningful was the dual control issue in China in September because there were a lot of government edicts. People were supposed to meet their quarterly goals and they were not on track to meet the quarterly goals. Starting about mid-September, there was a lot of pressure to get the dual control initiatives underway and on target. In China, when they set targets, you can almost rest assured they're going to hit those targets. That material challenges in West, but we were able to manage through most of those.
Okay, thank you.
Again, if you'd like to ask a question, please press star then the number 1 on your telephone keypad. The next question is from Eric Petrie from Citi. Please go ahead.
Hi. Good morning, guys. Auto, aerospace, construction end markets. Are you worried there at all with China's dual control and low inventory levels in Europe?
Yeah, Eric, I would tell you that none of our big aerospace guys have right now put out any concerns about magnesium, nor have our EV customers. Right now, that is not currently on the radar screen. We're always trying to look around the corner, but that is one that so far has not raised its head.
There are no further questions at this time. Back over to you.
Thank you, Jason, and we'd like to thank everyone for joining the call today, for your time and interest in PPG.