Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the TPG's 2nd Quarter 20 21 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question and answer session.
Q2. To allow everyone an opportunity to ask questions, the company requests that each analyst Thank you. I would now like to turn the conference over to John Bruno, Vice President of Investor Relations. You may begin your conference.
20. Thank you, Jason, and good morning, everyone. Once again, this is John Bruno. We appreciate your continued interest in PPG and welcome you to our 2nd quarter 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 Monday, July 19, 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 and A session. Both prepared commentary and discussion during this call may contain forward looking statements quarter reflecting the company's current view of future events and the potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, Q2, 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. 2020. Now let me introduce PPG Chairman and CEO, Michael McGarry.
Thank you, John, and good morning, everyone. I would like to welcome everyone to our 2nd quarter 2021 Earnings Call. Most importantly, I hope you and your loved ones are remaining safe and healthy. Now Now let me provide some comments to supplement the detailed financial results we released last evening. For the Q2, our net sales were a $0.94 Our adjusted EPS was significantly higher than the Q2 of 2020, Q2, partially due to last year's Q2, including various pandemic related impacts.
Looking back The pre pandemic results, our adjusted EPS was similar to the Q2 2019 despite sales volumes being 6% lower than that period, And we are dealing with historical high levels of raw material inflation in the current period. Our strong year over year sales reflect a partial recovery from 18th consecutive quarter. Unfavorable pandemic effects of last year, but also include better than market performance across many of our businesses for this quarter. We achieved these higher sales levels despite significant supply and component disruptions, including ones that reduce the overall manufacturing capability of our customers. Coming in the quarter, we expect that these disruptions would have an estimated impact of $70,000,000 to $90,000,000 However, the actual impact was much more severe $2,000,000 Our adjusted EPS in the second quarter, while near all time record levels, was below our April forecast.
Three main factors impacted the difference. Due to supply disruptions, we experienced 2nd quarter. Unprecedented levels of raw material and transportation costs that continually elevated as the quarter progressed. This drove raw material inflation to be up a mid to high teen percentage on a year over year basis versus our original estimate of a high single digit percentage increase. Our automotive OEM business was impacted most significantly from supply disruptions as we estimate that more than 2,000,000 less cars were built $40,000,000 more than we expected in April.
Finally, as we expected, the supply disruptions led to shortages of certain raw materials. We
quarter.
We're highly confident that the sales related to these production disruptions will be deferred to later quarters, and this will elongate the global automotive OEM recovery. As I mentioned in April, coming into the year, we're expecting an inflationary environment and had prioritized selling price increases 18% across all our businesses. This helped us achieve solid price increases year to date and our pace of price realization is well ahead
18.
28 and we are continuing on a business by business basis working to secure further selling price increases. This includes executing additional pricing actions during the Q3. As a reminder, the Q2 of 2021 was our 17th consecutive quarter of higher selling prices. We're also continuing our strong cost management, evidenced by our SG and A as a percentage of sales being 130 basis points lower than the Q2 2019. This is being supported by our ongoing execution on our structural cost savings programs, realizing an incremental $40,000,000 of savings in the 2nd quarter.
We have increased our targeted full year 2021 savings by about 10% to $135,000,000 In the Q2, we finalized 3 acquisitions: Ticarilla, Borvaug and Sedalan. We funded the acquisition through a combination of cash and external financing, which came in at a very attractive borrowing Q2. Great. We had yet another strong operating cash performance during the quarter and ended the quarter with about $1,300,000,000 of cash and cash equivalents, In regards to our other two recently completed acquisitions, our new traffic solutions business, which is comprised of the Innis Flint quarter. Performed to our expectations in the quarter despite significant challenges with raw material availability and its order book is at historical highs entering the Q3.
Our Versaflex acquisition, while smaller, is performing well, has already helped us win significant protective coatings project in Central America due to the advantaged technologies that we acquired. Another notable accomplishment during the Q2 was the appointment of our company's first ever Vice President of Global Sustainability. PPG has been a clear ESG leader in the coatings industry through our market leading sustainable products, and we have plans to further improve our overall ESG program. We will provide updates on these initiatives in subsequent quarters. Moving to our current outlook, Most important is that we're continuing to see very robust and broad based demand globally, including in many industrial and OEM end use markets and strong architectural coatings trade activity in the U.
S. Many of our customers have indicated that their order books were at high levels exiting the 2nd quarter. 20. In the near term, we expect some of our customers will continue to be challenged with PPG is also experiencing the continuation of spot outages of Direct Coatings raw materials. As a result, we expect some unfavorable sales impacts from Q2 from both our direct supply chain disruptions and the production curtailments of some of our customers in the Q3.
Q2. Our current best estimate is that our sales are expected to be unfavorably impacted by about $150,000,000 in the 3rd quarter due to these issues. We expect these sales will be largely deferred to subsequent quarters. We also expect raw material costs to remain at elevated levels in the 3rd quarter. Our current best estimate is that they will be inflated by a much as 20% compared to the Q3 of 2020 With businesses in our Industrial Coatings segment experiencing the largest increases due to the raw material mix of those types of coatings.
20. And anticipate in the Q3, we now fully expect to offset raw material cost inflation in the Q4 on 2021 on a run rate basis. As I've said previously, these current disruptions are temporary, and we strongly believe there's sufficient capacity available in our supply chain once operating conditions normalize. I'm very pleased that we've completed 5 recent 20 20. In the Q3, these acquisitions will add about $500,000,000 of incremental sales to our company.
2020. As we continue to integrate these acquisitions, we'll start to realize meaningful synergies that will be a strong earnings catalyst. We're also witnessing domestic flight activity picking up all over the world. This will begin to benefit our commercial aftermarket business in aerospace
20 basis points to be up a low single digit percentage
in the Q3 compared to the prior year quarter, with differences by business and region. Including our acquisitions, we expect overall sales growth to be over 20% compared to the Q3 of 2020. 18.2 18% higher than the adjusted EPS we realized in 2019 despite the significant raw material inflationary pressures we are dealing with this year and the fact that sales volumes are still not fully recovered from the pandemic when compared to 2019. Finally, I'm very pleased that our Board recently approved a dividend increase of about 10%. Our September payment, Q2, coupled with the anticipated payment of a similar quarterly dividend in December, will mark 50 consecutive years of annual per share increases in the company's dividend.
This is another testament of our company's legacy of consistently rewarding our shareholders and the confidence that the Board and I have in our ability to continue to generate and grow our operating cash flow. In closing, I could not be more proud of our now 50,000 employees around the world who serve our customers, our communities and our many stakeholders. Their dedication and commitment to doing better today
Our first question comes from Ghansham Panjabi from Baird. Please go ahead.
Hey guys, good morning.
Good morning.
Yes. So I guess, Michael, what do you think is a realistic timeline for The recovery in auto OEM production, I mean, between 2Q and 3Q that looks to be about $200,000,000 in total. Is this a deferral of a couple of quarters or is it longer than that just based on what you see at this point? And then just also more broadly, there's been some concern in the market about slowdown in China. Q2.
Can you just sort of give us a real time pulse as to what you're seeing in the region? Thanks so much.
Well, Ghansham, first of all, I would say that the auto industry continues 2nd quarter. We do anticipate Europe recovering, But probably at a little bit slower rate because of the pace of vaccines over there. But I would tell you overall, we're anticipating that there's going to be About a 1000000 cars less built in the Q3 than we had originally anticipated because of the chip shortage. And right now, if you look at the overall pace of car builds, they're still below peak levels, But demand is recovering. So I anticipate that we're going to have a very strong back half of twenty twenty one and a very good 2022.
So From that standpoint, inventories across the lots, whether they're in the U. S. Or China, are still at quite low levels. And so I'm still remain very optimistic. From a China standpoint, specifically, inventories are Probably in that 40 to 45 day range, which is below average slightly.
Demand remains strong. And what's most encouraging to me is that And so we anticipate continuing to be above industry build rates in content.
And Gautam, this is Vince. Just to dovetail on Michael's comments. If you look at the automotive OEM, particularly in the 2018. One other benefit we expect to occur later this year or early next year as chips become available is the rental car fleets. Rental car fleets, there's a sparse inventory in those fleets.
And so we know those typically account for 10% to 15% of auto builds annually. And we know that 10% to 15% will be higher going forward until they replenish those fleets. More broadly in China, we're seeing while we're seeing a lower growth rate, we're still seeing good growth across many of our end markets. So I think the anecdotal information you referenced is accurate. The growth has come off what was very high rates, but it's still a solid growth rate going forward.
The next question comes from John McNulty from BMO. Please go ahead.
Yeah. Thanks for taking my question. With regard to the raw material catch up and where you catch up with price, and I think you're looking for it, I think you said in the Q4 toward the end of the year. Is that exclusively on price getting high enough to catch up? Or do you have any assumptions baked in for raw materials actually coming off from these twenty twenty.
And then I guess tied to that, anything about the raw material environment right now that's making you think about possible changes to your supply chain and how you
We think this is a temporary dislocation. We've actually been very surprised at the recovery rate in this period. Typically, even if you go back and look at the most severe hurricanes, our suppliers have been able to get online and get back up to full rates 20. Pretty quickly this time, they've been significantly challenged, and it's been compounded by the lack of Transportation equipment, not just equipment, but more importantly drivers. So we've had a number of situations where we had to go out spot material and it was challenging to get trucks to be able to deliver that because of the inability of some of our suppliers.
So If you ask me if there's any change we might do, there could be some additional suppliers brought into the mix provide us some additional flexibility. But other than that, I don't think there'll be any major changes. But overall, I would say raw materials, The only one that we're currently forecasting to be moderating is oil. And as you saw, Oil in the past week has started to decline, so solvents would parallel the oil price changes. So that's the only one we have right now in our model.
John, Your first question on our assumptions on raws in the 4th quarter, we would be assuming that from a on a sequential basis, the Q3, the 4th quarter, the raws would stay At a similar level. That's our current assumption.
The next question comes from David Begleiter from Deutsche Bank. Please go ahead.
Thank you. Good morning. 20. Michael, Vince, can you quantify how much worse price versus raws will be in Q3 versus Q2? And how much better you think they'll be in Q4 versus Q3?
Thank you.
Yes, David, I think this is Vince. I think it's similar to the question John 18. We gave guidance out 20% raw material inflation give or take in Q3. We did include in the slide packet that was posted last night to our website. Our initial views of pricing, those views will be somewhere between 4% 5% 2020.
So we're still looking at additional pricing actions throughout 3Q across all of our businesses, all of our regions. In 4Q to John Bruno's comment a minute ago, while we expect inflation to remain high, we do expect To remove some of the spot buys that we're doing currently, those are typically coming at a large premium to traditional pricing or list Again, on a run rate basis, our target is to get fully offset in 4Q.
The next question comes from John Roberts from UBS. Please go ahead.
20. Thanks. The raw material and logistic comments all seem to be North American centric. Could you give us maybe a
2020. Yes, John, this is Michael. I would actually say that 18. The Chinese raw material inflation was actually higher. That was driven primarily by epoxies, isocyanates.
2020. And so those were the most challenging thing in China. The rapidity or the significant increases that we saw in China Have kind of leveled off at this point in time. I would say in Europe, they are also coming up, but not quite the same rate as China. Availability in Europe is better than availability in the U.
S, but still not great. Availability in China is there if you're willing to pay for it. So for spot, 18. And so from that standpoint, we've been working closely with our customers on this additional raw material inflation. And I would say for Latin America, It kind of mirrors the U.
S. Market.
And John, if I could just add, we are seeing with ocean going freight, some of that has been significantly delayed. So even though if there's availability and it's a product that's being ported around, it's not showing up in time. So again, that's exasperating some of the issues. We expect again a lot of these logistical issues to begin to self correct in the Q3. Q2, we have to remind everybody Q2 is typically the peak quarter for a lot of companies, a lot of industries.
Q3, things start to moderate In terms of overall global economic demand from a seasonal perspective, so again we expect some of this to self correct.
The next question comes from Stephen Byrne from Bank of America. Please go
ahead. Yes, thank you. I wanted to drill in a little bit about the Moonwalk rollout in Europe. You mentioned 7 50 Installation. Can you put that into perspective?
Like how many auto body shops are there in Europe? Is 750 just Scratching the surface or is this meaningful? And with respect to the 20% that's new customers, are you 20. The outlook for share gains would be helpful here. Yes, Steve, this is Vince.
If you look across Europe and the U. S, there's 1,000 upon 1,000 body shops. So this is a small percent relative to the total universe. I think for us what's most exciting is every one of these we can make and get to market is immediately sold. There's a back order Significant back orders in Europe.
This is now we're moving this now to the U. S. We are certainly providing our existing customers who value the speed that this provides for their paint We value that productivity. We're providing them with the opportunity to purchase this first, but we do have an allotment of these 2020 that are really focused on new customer wins. And I think as we roll out kind of this eightytwenty strategy, We're going to continue to see customer wins around this body shop productivity, which the premium shops, the MSOs prefer, that's their business model.
So still early innings here, but we're exceptionally pleased with the traction this is getting Q2. And I will continue to update you and continue to roll out more Moonwalk devices as we go forward.
The next question comes from Mike Sison from Wells Fargo. Please go ahead.
Hey, guys. Good morning. In terms of the raw material pricing gap, any thoughts between each of the segments? Are there some segments 2020. A little bit better off than in terms of getting pricing and closing that gap, are there other segments that are doing It might take a little bit more time to get to close the gap.
Yes. Mike, this is Michael. So I mean, it's a 20. Traditional PPG model here. So the gap is the largest in automotive for two reasons.
1, they had the biggest inflationary gap And the second is, it's most difficult to get price increases with the automotive guys, but I am very pleased to announce that we have gotten 18. I would say the next inflationary would be our industrial coatings business. They also buy a lot of 16. So they would have been hit 2nd most difficult. The business that's impacted the least is aerospace 2 to the raw material mix we have there.
The place that we probably have closed the gap the most is architectural. We're working also hard on traffic Solutions. This is a business that historically price was a secondary thought. We've elevated that in this business and we've been very pleased at the Base recovery in our traffic solutions business. So I don't think it's any different than what we've seen in years past.
And I think we're going to Continue to push hard to close that gap with our automotive customers. And that's I'm really pleased when you think about where we are in this cycle versus Where we were in the last cycle, it's light years apart.
The next question comes from Jeff Zekauskas from JPMorgan. Please go ahead.
Thanks very
much. I think at the end
of the last quarter, you thought that you would earn $2.15 $2.20 a share. When did you realize that you wouldn't be able to do that? Was it something that happened at the very
end of the quarter or in the
middle of the quarter? And in your In the misassessment of how much you might earn in the second quarter, what were the real sources of that? Was it an information issue or did it 18. Turnout that raw materials really rose very, very quickly in June. Can you talk about the history of the way you assessed the quarter over the past couple of months.
Yes, Jeff. This is Vince. 18. So if you look, we came out early in April, we were one of the early reporters in April. It was directly after the weather event in Texas.
At that point in time, we were hearing from our suppliers and as Michael alluded to earlier that this would be a multi week startup restart up. As we progress through the quarter and especially in June, we continue to see outages and escalation of raw materials, Specifically in the June time period, which is why we're seeing Q3 higher than Q2 in terms of our raw material estimates. We continue to see outages particularly around transportation. Those outages continue to worsen Especially in June and our customers continue to have spot production curtailments on their from their perspective. So as we were in June, we continue to see the automotive market be heavily impacted by chip shortages and a lot of customers In that particular industry, who had earmarked Q3 for some downtime actually took it in Q2.
So as we went through the quarter, And again, as you look at our guidance for Q3, you could see some of these things are going to certainly carry forward into the Q3 that we were not We are anticipating them being rectified some point mid Q2, certainly not even before late Q2.
And Jeff, this is Michael. I would say we're disappointed that the raw material inflation continued at such a 20 trucks and they get you 10. That doesn't help you. So we own up to this
The next question comes from Prashant Jayvakar from Citi. Please go ahead.
Yes. Hi, good morning. Michael, given the shortage of raw materials, are you able to make enough paint products? And where do Paint inventory stand in the supply chain in your stores, for example, or in the MSOs and Refinish. And if paint inventory is below normal, could there be sort of paint restocking cycle sometime in second half or next year.
Can you talk about that?
So P. J, I tried to cover that in our opening remarks. Inventory levels in all our businesses are at exceptionally low levels. You saw that in our working capital numbers. I've actually asked our businesses 2020.
Share with me the amount of product they made in April, May, June and versus how much of that went out the door and virtually everything we made went out the door. So inventories have gone backwards for us. We see very low inventories in the chain and many of our customers as well. So if you look at our architectural guys, they typically don't carry a lot, but they have even less. If you look at our industrial customers, I've had more calls from customers directly to me in the past quarter than I've had in the past Probably 3 or 4 years.
So customers have low inventories as well. I do think they will be a restocking. Of course, as you know, In aerospace, inventories, I would say, are at rock bottom because they couldn't afford to buy anything previously. And so they're trying to stock up now ahead of what they anticipate as increased demand. So I can't really think of a single one of our businesses that have Any kind of material inventory either on the shelf or at our customers.
And PPG, this is Vince. If you look ahead, we do think, 2018. Again, there's very good underlying demand in many of the markets that we supply, automotive being a proxy as we talked about earlier. There's several steps Where we see automotive sales continuing for multiple quarters. There's a restock that will take place just to get back To normal safety stock levels in our customers' inventory.
So we feel good for the next several quarters 2019 about the ability to sell product and or our customers' ability to sell product More so than we have for quite some time because of this very strong underlying demand around the world.
The next question comes from Frank Mitsch from Fermium Research. Please go ahead.
Hey, good morning folks. Michael, you mentioned during this call that you maintain enough flexibility to do accretive cash deployment. And so as I'm listening, there's
a number of comments in the release and the transcript on this call today that says you guys are very constructive on your outlook.
So I was just curious 20. What extent might you be able to be opportunistic on buybacks?
Well, Frank, as you know, we always prefer the acquisition Over the buybacks, clearly, we take a look at this on a monthly basis. You saw that we finished the quarter with about 1 $200,000,000 to $1,300,000,000 of cash. We're coming into our very strong cash period where we generate a lot of cash 2nd quarter. I think our current ratio is 2.1. So eighteen.
From that standpoint and with cash coming in, we're in a good position. There have been a number of the top 30 coatings company have been taken off the board In the last couple of, let's call it, last 3 or 4 quarters. So the availability of targets is probably not as good as it was 6 months ago. 2020. So right now, we're going to keep an open mind for that.
And we're going to remain balanced And how we deployed cash, you saw that we increased our dividend. We think that was important. Certainly, 50 years Dividend increases is a significant milestone. And right now, I would say that I like our acquisition order log book, if you will, where we stand, but pipeline. But overall, I would say we're going to remain balanced
eighteen. The next question comes from Laurent Favre from Exane BNP. Please go ahead.
Yes. Good morning all. My question is on architectural and the guidance on Q3 with volumes down in both the Americas and Europe. Eighteen. I was wondering if you could talk about, I guess, the different buckets of what's driving that.
Is it underlying demand? Is it share loss
Laurence, I would say from an architectural standpoint, there's certainly been no share loss. We've been really pleased with how we're performing in You saw the numbers where you reported in both Europe and the U. S, strong numbers. So 2020. From that standpoint, what we're looking at is a shift as we anticipated would eventually happen of people moving from DIY To trade as people start to go on vacation and start to spend their money, they're going to hire professionals to come in and do that.
We see our trade order book increasing to offset the weakness in DIY. 2020. But what I would point out is DIY is still well above 2019 levels. And so when you combine the 20. We're pleased with the outlook on where we stand.
I think the outlook we gave for the Q3 for architectural is quite strong. And we are pleased with the performance of the business.
Yes, Laurent, I would add this is Vince. I would add, we are still Q3 expecting to experience shortfalls for raw material supply coatings raw material supply. So it is moderating our ability To supply some of our key products, especially on the U. S. Side, So trade in and DIY.
So that is one of the limiters we do have in terms of our sales outlook.
The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Very much. Just wondering, we're Halfway through 2021. Maybe you can give us an assessment of the cost that came out with COVID, the cost that you're able to avoid As we're now halfway through the year, do you have a sense of any better sense of how much of that's going to come back and when? Yes, Vincent, this is John. So we think we're kind of at parity now.
There might be some travel and entertainment, just some modest stuff that comes back As things continue to open up, but we felt that on an annualized basis that we could bank We said on a quarterly basis $25,000,000 to $30,000,000 of temp savings. We had another 30,000,000 benefit in the Q2. So I think this is something we probably won't talk much more about because at this stage, 2020. I think we've made some of these costs permanent reductions and now we'll just ebb and flow more with our quarter. Thanks very much.
Amit, this is Vince. I do think when you look at our multi year Selling general administrative cost as a percent of sales, you could not only see the interim savings as we call these And those are also benefiting us. And then on top of that, just to dovetail for Michael on the acquisitions, we do have Significant amount of synergy savings targeted for the 5 acquisitions. We gave out a target earlier in the year. 2020.
We're on target for that, although some of these have just closed. So a lot of those savings will be visible and more visible in 2022.
Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.
Yes, good morning. Michael, there's been a lot of focus on automotive as a source of the negative variances. I'm curious, if we put automotive on the side for the moment, Would you care to call out other businesses that would have disappointed relative to your prior expectations? 2020. And if so, was that more driven by demand variance or price cost spread that was spread across many of your businesses.
Yes, Kevin. So the 2 businesses that were impacted besides automotive the most We had a hard time getting the emulsions and resins from our suppliers. You can't make paint without that. And so we were hand to mouth On those kind of things despite having significant demand, if you go into any of our stores or go in the big boxes or asking the I would all tell you that all the suppliers are struggling to put paint on the shelves. So I think that was 2020.
The most material things, but it is interesting. We didn't track it because I didn't think it would become a material number. But The number of other places that chips show up, whether it's appliances or other heavy duty equipment. So everybody It's being impacted somewhat, but it didn't it really didn't turn out to be enough of a number to call out. But I would say the 2 biggest ones are Architectural and Traffic Solutions.
Yes. And Kevin, I'll just add that in many of our businesses, automotive obviously, The 2 Michael mentioned traffic solutions architectural, we can even get into aerospace, some of our industrial businesses, refinish. We have a higher order book exiting Q2 that we just could not fulfill. So our order book as we alluded to earlier is very strong. We just got to be able to 'twenty.
Fulfill that with product availability.
The next question comes from Arun Viswanathan from RBC Capital Markets. Please go
ahead. Great. Thanks for taking my questions. So I guess I just wanted to go back to 20. The last question a little bit and understand, I guess, potentially some of the bridge items for 2022 versus 2021.
So you'll have a full year of accretion on many of the deals. You have kind of a normalization in some of your volumes and hopefully you
have caught
up on price cost. So I think you made the comment that your 'twenty one EPS is going to be Double Digit Growth from 2019 Levels. Is that a fair starting point when you think about 2022? Twenty. And is there just given what you've seen on the cost side, is there opportunities to continue to grow margins as you recover that price cost spread in 2022 as well.
Thanks.
Yes, Arun, this is Vince. A little bit longer look than we want to do at this point in time. There's still a lot of fluidity just in the economies out there. I think we tried to lay out today Some of the positive things we think are in store, not only for us, but the industry, good demand. We do think PPG specific these acquisitions along with the synergies that come with them.
We hope we get to a normal price cost environment, 2020. But it's a little too early to make that call for what the supply chain looks like going into 2022. Right now, we think it will normalize, But it's just too early to make all these calls at this point in time of the year. We certainly feel very optimistic about 20. Next year, just given the overall demand outlook, typically when you have strong demand that parlays into positive The
The next question comes from Duffy Fischer from Barclays. Please go ahead.
Yes, good morning, fellows. Just wanted to drill down on 20 volume, particularly in Q3, if we can. Vince, you talked about 4%, 4.5% price rolling through. 20. And relative to your low single digit growth, I mean, that's kind of all the growth then that would be in both segments as price, 20, which will mean that volume is kind of flat to maybe down.
And Michael called out $150,000,000 of kind of foregone sales because of issues, which might add another 4 percent to that. So what that would say is kind of the run rate volume growth looks like it's 3% -ish in Q3, which feels 20. Pretty light given how early we are in the cycle. So can you just talk about what you think the underlying volume growth is In your businesses kind of Q3 and then how has that set the table then for continued volume growth the rest of this year into next year? 20.
Duffy, I'll try to give this a shot, a lot of numbers there. Look, when you look by business, we're still constrained, As Michael alluded to, on our ability to fully satisfy our order book, we expect that to continue well into Q3, if not fully through Q3. Some of our customers are still well constrained on their ability to produce. So again, we gave out the guidance of low single digit organic growth 2020. And we think there's a lot of moving pieces in there.
What again, I'll just pass through to you is our confidence level that We're not going to be able as an industry to supply the demand that's out there even by the end of Q3. So how these Pieces come together Q3 versus Q4. We'll still see how that's determined, but strong very strong underlying demand, Recovery demand occurring in aerospace, starting to occur in aerospace, some demand in refinish as traffic miles pick up. 20. So we're just confident there's underlying demand there and we just got to be able to fulfill it.
The next question comes from Bob Koort from Goldman Sachs. Please go ahead.
Thank you. Good morning. Michael, Vince, I
think you guys talked about having to go into spot market for procurement. How tolerant are your customers going to be of that as a basis for price hikes and sustaining price hikes into next year as some of the spot markets start to normalize a bit. Is there confidence you can retain those price hikes? And is there any terms with your customers or is that just something that doesn't happen? Thank you.
No, Bob, this is Michael. Eighteen. We have been aggressive in trying to get our customers pay for the additional freight charges that are if they want to move up orders, if they want 2020. You know, us to buy from spot people in order to keep them running, we have gone to them and asked them to pay for that. That's a portion of the overall raw material increase.
Even without the spot, we'd have still been 15% to 17%. So these are real increases. They're seeing them in their own cost structure as well. So they're not able debate whether or not we're having these things. So as Vince alluded to earlier, we need to get about 50% of the overall increase.
And so We've been out there with some very significant increases and I think we're making a lot of progress in that regard. 2020. Clearly, we'd like to have moved faster. But when I look back on 2017, 2018, we're well ahead of that. So I think the customers are very understanding of this.
And what it takes is the whole
market to move to capture it. And we've been out early
and often. And quarter. And we've been out early and often and we'll have to continue to do that in 3Q and 4Q.
And Bob, I'll just add that most of our customers are facing similar issues beyond just coatings and they're trying to supply their customers And their shorter product as well. So this is a pervasive issue that's well known across the materials and industrial spaces. 2020. And our customers are seeing inflationary pressures from a variety of different industries. We're one of those industries, of course.
2020. And so again, the acceptance level, as Michael alluded to, is higher today than it certainly was in past cycles.
The next question comes from Mike Harrison from Seaport Research Partners. Please go ahead.
Hi, good
morning. I had a question on the aerospace business. Within the aftermarket business, Do you have situations where some of these aircraft have been mothballed for several months and they need significant maintenance or even repainting before they Turn to Service. Maybe just talk a little bit about how that aftermarket business recovery is playing out.
2020. Yes. So the easy one is on the repaint side. They don't need repainting per se, but if any if a customer had returned planes to the less lease or those planes, they'd be returned in a white format. So we have been painting a lot of planes white 2020 during the pandemic.
Now we're not paying any white right now because they're going to be returned to service. So there will be a pickup of that. Also, What we historically find is after events like this, you will see some rebranding being done. So we're anticipating that will also happen maybe in 2023, 2024. But overall, right now, when you take a plane out of storage.
If it was properly stored, there is some maintenance they need to do on it before it goes back into service, but then they don't have to do the big heavy checks They do at the big maintenance cycles. But overall, inventory is exceptionally low. Our order book in Or I should say our book to bill ratio has improved significantly in Aerospace. Our backlog has increased. Working the plants to be able to get the product out the door.
So we're feeling very, very good about aerospace on the MRO side. We're not there yet obviously on the OEM side. Builds are picking up slightly on the 7 37. They're picking up 2019. Slightly on the A321, but for the bigger birds, they're not picking up at all and we don't anticipate seeing that range pick up until 2023 time period because of a lack of international flights.
The next question comes from Jadeep Panjia from On Field Investment Research. Please go ahead.
Thanks a lot. Just a question really Around the logistics. So obviously, there's a significant increase in container rates out of China. So as And when the container rate or rather logistics situation sort of normalizes, do you expect sharp reversal in some of your raw Because if I think about oil, it has only gone up, let's say, call it, circa 20% in the last quarter, but some of your raw materials have more than doubled. 2020 and literally volumes that are coming out of China into Europe and U.
S. Are gone down a lot in all the raw materials. So Once the container rate situation normalizes, do you see a sharp reversal of raw material dynamic? Thanks a lot.
Jadeep, this is Michael. I would say the container rate is only a portion of the overall raw material spend. The bigger Challenge overall has been the supply demand issue for the base raw materials. Certainly, we're not happy with the Container Prices. It has escalated significantly.
But if we could get the overall base Supply demand balance back in balance, if you will, in our supply chain. I think prices would has faced significant inflation when we said it's 20% in Q3 and we'll have a significant inflation in Q4. For as far as we can currently look out, we're still looking at a pretty inflationary cycle.
Yes. Again, this is Vince. If I could just add. So what we've seen is a compounding of events here. One was the obviously the shock in March to the chemical 20.
That was then compounded by the logistics Systems got out of sequence, which was then compounded by some of the international logistics, not only got a sequence, but were higher priced. So these kind of chain events is what really pushed these raw materials up. Some of that will unwind As we get out of the season, as I said earlier, Q2 is the peak season. But we do expect these raw material costs remain elevated for the balance of the year.
The next question comes from Edlain Rodriguez from Jefferies. Please go ahead.
Thank you. Good morning, guys. Michael, quick question. I mean, one quick one about medium term volumes. So when you look at the couple of businesses that are still below pre pandemic level, do you have a sense of when they catch up?
I mean essentially 20 and the pace of activity you're seeing, do you get there in 2022 or is it more like 2023 or so?
Well, the only business that will not be recovered by 2022 in my opinion is aerospace OEM. So aerospace MRO will probably be 90% Certainly, the military is already back. Refinish, we saw last year When Europe opened up, we saw the refinish miles in Europe come back very strongly. So we're anticipating the same thing as they get the Vaccines out that we anticipate the back half of twenty twenty one will recover significantly and by Hopefully, all of 2022, Europe will be back to normal. We see in the U.
S. Already, we're at 90 plus percent recovered in Refinish. And Actually, what you're seeing is a little shift from traffic from the cities into the suburbs. So, collisions are actually improving every month here in the U. S.
And of course, in China, it's all the way back to normal. 2020. And we see a snapback in India whenever we see the folks get allowed to travel again. So Most places, it is vaccine related. And so we're pretty confident.
If you go through the rest of our businesses, we're already back in industrial. We're Mostly back in automotive. Our packaging business is well ahead. The demand in aluminum packaging is very strong sharp. Packaging business is going to have another record year this year and next year.
If you look at our PMC business, 2020. Protective, now that oil prices have recovered, I expect protective to continue to recover as well as they start to protect These high value assets in the oil fields. So I'm very comfortable that we're going to have a strong back half of the demand for 20 21 and a continued demand recovery in 2022.
There are no further questions at this time. Mr. John Bruno, I turn the call back over to you.
Yes. Thank you, Jason. I'd like to thank everyone for their time and interest in PPG. This concludes our 2nd quarter earnings
call. This concludes today's conference call. You may now disconnect.