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Executives

Vincent J. Morales - Vice President of Investor Relations

Charles E. Bunch - Chairman, Chief Executive Officer and Member of Operating Committe

David B. Navikas - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance and Member of Operating Committee

Analysts

David L. Begleiter - Deutsche Bank AG, Research Division

Duffy Fischer - Barclays Capital, Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Eugene Fedotoff - Longbow Research LLC

Robert Koort - Goldman Sachs Group Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

John E. Roberts - The Buckingham Research Group Incorporated

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Abhiram Rajendran - Crédit Suisse AG, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Robert Walker - Jefferies & Company, Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Gregg A. Goodnight - UBS Investment Bank, Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Charles A. Dan - Morgan Stanley, Research Division

James Sheehan - Deutsche Bank AG, Research Division

Saul Ludwig - Northcoast Research

Richard O'Reilly

PPG Industries (PPG) Q4 2012 Earnings Call January 14, 2013 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2012 PPG Industries Earnings Conference Call. My name is Martine, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Vince Morales, Vice President of Investor Relations. Please proceed, sir.

Vincent J. Morales

Thank you, Martine, and good morning. Again, my name is Vince Morales. I'm the Vice President of Investor Relations for PPG Industries. Welcome to PPG's Fourth Quarter 2012 Financial Teleconference.

Joining me on the call today from PPG is Chuck Bunch, Chairman of the Board and Chief Executive Officer; and Dave Navikas, Senior Vice President, Finance and Chief Financial Officer.

Our comments relate to the financial information released on Monday, January 14, 2013. I will remind everyone that approximately 1 hour ago, we posted detailed commentary and accompanying presentation slides on the Investor Center at our website, ppg.com. Those slides are also available on the webcast site for this call, and they provide additional support to the opening comments Chuck will make momentarily. Following Chuck's perspective on the company's results for the quarter, we'll move to a Q&A session.

Both the prepared commentary and discussion during the Q&A may contain forward-looking statements reflecting the company's current view about 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.

Today's presentation also contains certain non-GAAP financial measures the company has provided in the appendix of the presentation materials, which, again, 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, Chuck Bunch.

Charles E. Bunch

Thank you, Vince, and welcome, everyone. Our record fourth quarter results capped off what has been an exceptional year for the company, driven by excellent operating performance and the announcement of several significant strategic transactions that accelerate the pace of our portfolio transformation.

Record fourth quarter adjusted earnings per share of $1.53 are 10% higher than last year and marked 10 consecutive quarters of adjusted earnings per share records. We achieved these results despite continued variation in regional economic performance and mixed end-use market demand levels.

A few business highlights from the quarter were the aggregate coatings segment earnings growth of 30% and Optical and Specialty Materials segment results, which were similar. Commodity Chemicals also grew earnings versus last year despite 2 unplanned outages during the quarter. Full year commodity chemical results eclipsed last year's record level.

Geographically, the United States remained our strongest region, with most businesses delivering top line growth. Emerging markets growth remained modest, but trends improved in several businesses versus the prior 2 quarters. European demand continued to be negative, but the trend there also improved slightly versus the last few quarters.

A key element of our success in the quarter and overall for the year was the company's strong operating execution. We continued to aggressively manage our businesses, and fourth quarter results also benefited from the restructuring actions, which we proactively initiated early in 2012.

For the full year, we achieved a record adjusted EPS figure of $7.94, which is up 16% from last year's record. Worth mentioning is earnings results improved in each region, including Europe. Also, our full year return on sales percentage was higher in each segment except Glass.

For the year, we delivered a record level of cash from operations, up 25% versus last year, and continued our long legacy of returning cash to shareholders by increasing our dividend for the 41st consecutive year.

In addition, the announced strategic actions reflect the continued execution on our vision to remain a global leader in coatings and Specialty Materials. Progress is well under way to finalize these actions.

We begin 2013 well positioned. Our expectations are for continued variations in economic conditions. We expect a growth bias to remain for the United States, improvement in growth prospects in Asia and European activity to remain subdued. As a result of these mixed economic conditions, we will remain diligent in managing our businesses.

Operationally, we expect an incremental $70 million to $80 million of savings from the finalization of our restructuring programs, and we will implement targeted price increases in our coatings businesses to fully offset the inflation from the past 2 years.

Finally, even before considering any impact from 2013 free cash flow, we have excellent financial flexibility, with cash and short-term investments of $2.4 billion. A primary focus for the corporation in 2013 will be to analyze prudent cash deployment opportunities focused on profitable earnings growth.

Overall, I am pleased with the financial performance we achieved in 2012, and we remain focused as we begin 2013 on profitably growing the company and creating additional shareholder value.

Thank you for your attention. This concludes our prepared remarks. Now, operator, would you please give instructions and open the phone lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of David Begleiter with Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division

Chuck, just on today's announcement on the Optical JV and the potential sale or purchase, can you give us a little more detail on your thinking on this business? Is it core? Is it not core? If you sold it, what's the tax base if you bought it? How much will it cost you? A little more detail will be great.

Charles E. Bunch

Well, David, we're not really going to give a lot more color on our -- on the press release, we did that for our disclosure obligations. And we're not going to get into a -- providing a lot of additional details on the press release regarding Transitions.

David L. Begleiter - Deutsche Bank AG, Research Division

Understood. Just one more thing, Chuck. If you look at your coatings margins. They were roughly 13.1% for the entire coatings businesses. Should they be up or down next year? And if up, by how much, do you think?

Charles E. Bunch

Well, we feel we have an opportunity to improve on our coatings margins. So we think, in general, economic conditions and volumes should improve globally. It depends, again, on the regions and markets. But we feel that, that is going to be an overall benefit. Plus we have -- as you know, we'll be calendarizing the full restructuring benefits as we go through 2013. So those 2 events, I think, or those 2 conditions give us an opportunity to improve on our coatings margins.

Operator

Your next question comes from the line of Duffy Fischer with Barclays.

Duffy Fischer - Barclays Capital, Research Division

You mentioned that you still want to get prices in the coming year to catch up with raw mats. How much more price do you need to kind of breakeven on raw mats overall?

Charles E. Bunch

Well, Duffy, we had some inflation as we look even at the fourth quarter. Even as the raw material basket was coming in balance, we still had a slight inflation overall in our costs. And so as we look to 2013, yes, we're seeing some -- a difference in trends overall for raw materials. We have some of our raw materials, especially on the inorganic side, that we have some modest declines. Although now, what we're seeing here as we start the year is some increases, especially in commodities here in North America, like propylene or ethylene. So I would say that we're looking for a more balanced raw material outlook as we go through -- as we open here in 2013, and we will have other inflationary costs. And we will have more than likely some targeted price increases for -- to address those or in businesses, regions, where we haven't fully recaptured the inflationary pressure that we saw over the last 2 years.

Duffy Fischer - Barclays Capital, Research Division

Fair enough. And then on your goal, I think you've talked several times about more than 10% that you'd like to de-content TiO2 from your can of paint. How much of that did you get accomplished in '12? And then how much more can we get done in '13?

Charles E. Bunch

Well, when we looked -- when we made the announcements regarding our targets for improvements in using TiO2 more efficiently, we said 4% to 6% during 2012. We accomplished that at the lower end of the range, and we think we still have in 2013 an opportunity to improve our utilization, again in the lower single-digit target levels for 2013.

Operator

Your next question comes from the line of Frank Mitsch with Wells Fargo Securities.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Chuck, you strike me as a somewhat loquacious individual. The press release on Essilor today, you're talking about the discussions there. And yet you, when you answered David's question, you talked about disclosure obligations. Now I would have thought that you would have discussions with them ongoing over the years. Has anything changed with respect to the discussions that you would have had of a strategic nature with Essilor?

Charles E. Bunch

No. I would say that, Frank, as you know, we are involved in a Reverse Morris Trust transaction with the Georgia Gulf. We are in the exchange period, and we are aware of our disclosure obligations around the transaction. And we felt that, yes, it was appropriate for us to issue the press release that we did.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Okay. All right. So it has changed somewhat, but it's really more of the RMT than perhaps something heating up today versus what it would have been 1 year or 2 or 3 or 4 or 5 years ago?

Vincent J. Morales

Yes. I think, Frank, the focus again is the fact that we're in this tender period, and we want to make sure we adhere to our disclosure obligations.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

And where are we on the -- what inning are we in, in terms of the restructuring? And what should we realistically expect? I think you'd indicated you had $70 million to $80 million left on the current program, a lot of it European-based. And you've got -- in terms of Akzo, you got $60 million when that closes, I think another $30 million in year one. So I mean, you can kind of get to $0.75, $0.80 of EPS benefit from restructuring in 2013. Is that how we should be thinking about that?

David B. Navikas

Frank, this is Dave. The $70 million to $80 million coming from the 2012 program is still a good estimate of what we're anticipating, and that would more likely come in the first half of the year. Certainly, the first year synergies that we're expecting following the Akzo acquisition will come later on and be impacted by when we're able to close that transaction.

Eugene Fedotoff - Longbow Research LLC

So you're still on track for a second quarter close. Correct?

David B. Navikas

That's what we're targeting.

Operator

Your next question comes from the line of Bob Koort with Goldman Sachs.

Robert Koort - Goldman Sachs Group Inc., Research Division

Chuck, just wanted a little more granularity on a couple of end markets you discussed in your release and commentary. On the Architectural side, you mentioned lower sales in emerging regions. I wonder if you can just give us a little more color if there's been any trend change and how long we might expect these negative comps to continue?

Charles E. Bunch

Well, I would say the biggest influence on our emerging region Architectural performance was actions that we took, Bob, in Chile and Argentina to scale back our operations in those 2 markets in light of the economic conditions so that, overall, I would say that the trends for emerging markets were not nearly as negative if you looked at it overall, excluding those 2 markets where we took company specific actions.

Robert Koort - Goldman Sachs Group Inc., Research Division

Okay. And then on your Industrial side, you mentioned that packaging coatings were strong in all regions. And I guess, I was looking at what Alcoa had to say about beverage can volumes, and it wasn't consistent across regions. So is there something you guys are doing differently that's giving you growth in the developed markets when it seems like most of the growth for those applications are in the emerging regions?

Charles E. Bunch

I would say that the strongest volume was in the emerging regions. But overall, we did see some volume growth in the developed regions, whether this was a restocking or emerging opportunities, plus also the BPA-free. The beginnings of those products now coming into the market may have had an influence. But certainly, we saw some volume growth in all of the markets, but strongest in the Asia-Pacific region.

Operator

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Did you have any reflections on titanium dioxide prices? Are they holding flat? Are they going down a little bit? Are they going up? Just sort of how are they acting and how do you see them in 2013?

Charles E. Bunch

We have seen declines in the trends since the beginning of the second quarter of 2012, so where they hit a peak. These are different by region, so we've seen more weakness in Europe in light of, we think, overall economic conditions. And as I said in my earlier comments, we're looking at a more balanced, flat raw material basket as we go into 2013, with probably modest declining trends in TiO2 overall, offset by what appears to be, at least here in the first quarter, some pressure on the petrochemical or organic side of the raw material basket.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Okay. In the -- in 2012, your restructuring efforts were to pull out, I think, $40 million to $50 million pretax in costs. Did you achieve that? And how would you look allocate those cost savings across your segments?

David B. Navikas

Jeff, this is Dave. We did achieve the $40 million of savings in 2012. And from a segment point of view, we had provided information in our April call that had identified by segment where we were anticipating getting those savings in 2012. And our actual performance was very much in line with that expectation.

Operator

Your next question comes from the line of John Roberts with Buckingham Research.

John E. Roberts - The Buckingham Research Group Incorporated

Was the high single-digit growth in U.S. Architectural sales more price or more volume?

Charles E. Bunch

Actually, it was fairly even but I would say probably biased to the volume side in the market.

John E. Roberts - The Buckingham Research Group Incorporated

And could you help us understand what performance -- excuse me, Specialty Materials and Optical would have done without the Thailand sort of dip in benefit comp and without the channel filling this? What would be a trend line in that segment because it had sort of 2 major things going on, both the easy comps against Thailand disruptions and the channel filling?

Charles E. Bunch

Yes, John. If you look at the Optical business in the fourth quarter, we benefited year-over-year on the bottom line by about $5 million due to the absence of Thailand flooding impacts. The top line, we certainly were glad to see what I would call a full fill of the inventory build for Transition VII, but that still wasn't the major driver there. We did see some -- as you know, the last 2 quarters, we had some de-stocking in the channel. We saw a little bit of overall inventory re-stocking, as well as the benefit of the Transition VII build. I'd say taking the 2 quarters in aggregate, third and fourth quarter, we're seeing, I'd call it, solid mid-single-digit trend gains.

Operator

Your next question comes from the line of Kevin McCarthy with Merrill Lynch.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Chuck, if TiO2 pigment prices do continue to erode, would all of that benefit flow into your gross margin for coatings? Or might you have any contracts whereby you'd be obligated to share in that benefit with your customers?

Charles E. Bunch

For the most part, our contracts don't have material price indexes. And as I mentioned in my comments, even though we're seeing a declining trend in the TiO2 pricing, it's being offset by either other inflation or some continued inflation on the organic side. But also on the inorganic side, we're seeing some non-TiO2 pigment prices that are increasing.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Okay, understood. And then as a follow-up, I thought I might try for a clarification on your Optical press release. There's a sentence in there that begins "Under certain circumstances, which PPG does not yet believe have occurred, either PPG or Essilor may have the right to specify a price." It wasn't clear to me exactly what the trigger might be. I'm not sure if you can comment on it. But if you could perhaps address what circumstances might need to arise for either party to specify a price, that might help?

Charles E. Bunch

Kevin, we're not prepared to go into the -- all of the specific details of the joint venture agreement, so we're not going to provide any more clarity other than what you've seen in the press release.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

All right. And then final one, if I'm may, Chuck. I think you cited improving growth prospects as part of your outlook for Asia. Can you talk about what is driving that? Is it macro or company specific or both and which product lines you're feeling better about regionally within Asia?

Charles E. Bunch

For us, the -- let's call it the general industrial activity, was improving as we move through the second half and into the fourth quarter. Automotive builds have also continued to grow. We have seen some, as you know, slowdown on the electronics side, and some of the construction-related end-use markets were still slow. Although here, as we've been talking about with the leadership -- with the new leadership in place in China, we think that we're going to see now incentives for growth. And we have seen some signs of strengthening in some of these other markets, although right now it is not quite evident on the electronics side.

Operator

Your next question comes from the line of John McNulty with Credit Suisse.

Abhiram Rajendran - Crédit Suisse AG, Research Division

This is calling Abhi Rajendran calling in for John. So a quick question on M&A. So looking past the Akzo deal, could you touch on roughly how much cash you expect to have to put towards further M&A, as well as some of the main areas of focus within a business and regional basis?

Charles E. Bunch

Well, if you look at our cash at the end of the fourth quarter, so we had some close to $2.5 billion. So we will receive, at the conclusion of the Georgia Gulf transaction, around $900 million. That will be our outlay more or less later in the year with the closing of the Akzo transaction. So that would put you at relatively the same position that we have finished the quarter in, which we have previously announced that our -- what we need to run the company is under $500 million. So it would give us, we think, considerable resources to deploy for shareholder value-creating initiatives.

Abhiram Rajendran - Crédit Suisse AG, Research Division

Got it. And then just some of the main areas of focus that you might be looking at, both on a -- either on a business or a geographic basis?

Charles E. Bunch

Well, we would continue to look for opportunities, as we talked about, in our coatings businesses. Geographically, we've made 2 announcements. We completed the Spraylat acquisition about 2 weeks ago. That was a North American-focused company in Industrial Coatings, although they had operations in China and in Europe. Akzo is predominantly or almost all North American, including the Caribbean, Canada and the U.S. And we continue to look for opportunities in other geographic areas, so that would be one of the areas in which we would continue to look for opportunities. But we have other segments of our business or our company that we think if there are appropriate opportunities, so we would continue to look for acquisitions in those areas as well if they will create shareholder value.

Abhiram Rajendran - Crédit Suisse AG, Research Division

Okay, got it. And then just a quick follow-up on the auto area. Could you touch on some of the share gains that you're continuing to see in auto OEM, just in terms of what's driving this and are they skewed towards any perching particular geographic regions, or anything else you could share?

Charles E. Bunch

Well, if you look at our automotive OEM business in 2012, 2 of the strongest growth areas globally for the industry were here in North America and in China. We are well positioned in both of those markets, and we think that we had a very good year in terms of participating in the industry growth, plus the customers that we were working with. And some of our new product introductions were very successful in each of those markets, and that was beneficial to driving the overall growth in our automotive coatings business globally.

Operator

Your next question comes from the line of P.J. Juvekar with Citi.

P.J. Juvekar - Citigroup Inc, Research Division

So post Akzo acquisition announcement, have you had a chance to talk to your retail partners, Home Depot, Lowe's, Walmart, to see their reaction in any potential channel conflict issues?

Charles E. Bunch

Yes, we have. We, as PPG, we visit the major customers in all channels on a regular basis. We did follow up with the customers in all of the channels. And we announced our strategy in which we were going to continue to support all of our existing businesses, plus those of the acquired company. And I would say that the interaction with the customers in the channels was very positive.

P.J. Juvekar - Citigroup Inc, Research Division

Okay. And then on automotive OEM, you just talked about share gains. I know a competitor was selling its business and that sold, but they probably lost share. Are the shared gains done now? Or do you expect the shared gains to continue in 2013?

Charles E. Bunch

I would say that it's difficult to determine actual share in this industry on a short-term basis. Many of the -- when you look at awards, oftentimes you're awarded business for several years, different models, different plans. And I would say at this point, I would not say that we see significant share shifts. We're trying to continue to support all our customers, and we have been fortunate to work with a number of them that have done very well in their markets, as we talked about, here in North America, in China and Asia more broadly. And probably most importantly, we just continue to work on execution, keeping our costs in line and especially focused on the weakness that we've seen in Europe overall. So we focus there not as much on shared gains, but more on execution and driving our operations.

P.J. Juvekar - Citigroup Inc, Research Division

And just quickly lastly, I think earlier you said that you got strong volume growth in Architectural. Can you compare your volume growth in your own stores versus big boxes and where it's coming from? I just want to compare qualitatively.

Charles E. Bunch

I think I indicated that the performance by channel was similar for us. We had high single-digit overall sales growth, probably more on the volume side than on the pricing side. And I would say the performance overall by channel was positive in both channels.

Operator

Your next question comes from the line of Nils Wallin with CLSA.

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

With regard Europe, it seems like that -- or excuse me, Architectural Europe, it seems like that business you've been able to enjoy price increases much more than some of your other coatings businesses. So I'm wondering -- and, of course, this is a mid or fairly weak macroenvironment. So I'm wondering what you're able to do there that allows you to generate a higher price increase year-over-year than in some of your other coatings segments?

Charles E. Bunch

I would say that the majority of the improvement in Europe has been driven by our cost and execution actions. And we did focus, as you know, in the overall corporate restructuring on Europe. And obviously, that segment, the Architectural EMEA segment, was the focal point for our restructuring activities in the overall Architectural business globally. So I think that's where you're seeing most of the improvement, would be on the cost side for that business.

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Got it. And then if -- it sounds like in your prepared remarks, you expect OEM volumes to be roughly flat year-over-year in 2013. Does that mean that you really have to see a lot more heavy lifting coming from the packaging and general industrial in order to see volume growth? Or is there something else in there to assume that you're going to see continued volume growth in general in the Industrial Coatings business in 2013?

Vincent J. Morales

Nils, this is Vince. The reference in the prepared remarks was really toward 1Q, not the full year for 2013. We do expect full year growth in global automotive, again, with European weakness as a partially offset. So again, the 1Q saw very strong results in the first quarter 2012. And the year-over-year growth will be tempered by those first quarter results last year.

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Got it. Got it.

Charles E. Bunch

That was the tsunami effect. So that you had in the first quarter, a lot of inventory rebuilding because the supply chains were depleted, especially among the Japanese-based manufacturers as a result of the tsunami in 2011.

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Got it. And then just finally, if more of a strategic question. With the Akzo transaction, as well as sure wins, it seems like, I mean, in just about every end market for coatings, you're going to be #1 or #2. Is there much more you can do in terms of M&A to -- I mean, it seems like there aren't too many more big companies out there that you can do or you can acquire. So going forward, are we going to see, if in terms of your acquisition strategy, just more bolt-ons?

Charles E. Bunch

Well, I think if you look at the coatings industry globally, it is still not a highly consolidated industry compared to many other global manufacturing industries. So we think that there will be opportunities for more consolidation on a global basis, but the regional mix of acquisitions may change. But if you look at the industry in most other regions in Asia, in Europe, Latin America, these are areas of continuing opportunity for further consolidation in coatings.

Operator

And your next question comes from the line of Laurence Alexander with Jefferies.

Robert Walker - Jefferies & Company, Inc., Research Division

This is Rob Walker on for Laurence. I guess just to follow up a little on raw materials. So propylene contract looks to set to increase about $0.15 in January. Does your forecast for -- the comment you made on relatively flat pricing in 2013, does that imply that propylene prices will soften later in the year as they did in the last year? Or I guess, are you planning to increase prices to fully cover the proposed January increase?

Charles E. Bunch

Well, I think our comment were -- was in relation to this balance in the raw material basket between, let's call them, the inorganic raw materials and the organic or petrochemical-based raw materials with these increases that we're seeing in propylene and ethylene here as we start the year and that potential impact on raw material price escalation in those raw materials offsetting any negative trends that we may see in the rest of the basket. That's what we are saying is, right now, we're looking at something more balanced. But obviously, we're going to look at the trends in the entire basket and the different raw materials that are going in. And if we see further spikes in propylene or those get pushed through into the propylene based or raw materials that we're buying, then we're going to certainly open up discussions with our customers if we see those escalating much more than what we've seen currently.

Robert Walker - Jefferies & Company, Inc., Research Division

Okay. So if the prices go up further than the January increase and they get passed through the derivatives, I guess, is there a price level where you would hit a point where you couldn't pass through the price in the current year and have a situation where you have to recoup it over 2 years?

Charles E. Bunch

Well, typically, as we talked about with the price increases in the past, typically, there is a period when we're trying -- we're certainly trying to push back on any price increases that we would be receiving in the short term. But then as we absorb this raw material inflation on our side, typically, as we talked in the past, it can take a quarter or 2 for us to try and get those increases reflected in our pricing with our customers. So I think that's, in general, how we've described the timing on raw material and pricing increases.

Operator

Your next question comes from the line of Don Carson with Susquehanna Financial.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

A couple of questions. One, on U.S. Architectural, where you're going to have a much bigger exposure, obviously, post the Akzo acquisition, what do you think that overall growth was for the full year from an industry standpoint for 2012? And if you exceed that growth -- the numbers I've seen suggest about 4% industry growth. So I guess it would be the first increase in a number of years.

Charles E. Bunch

That would be around what we were saying would have been the growth in 2012, Don. So that's consistent, and it's certainly the first increase in several years. We're still nowhere near where we were before the crisis. So if you go back to 2006 or 2007, we're still much below that. We think that 2013 is going to be a good year for the U.S. construction industry. The first quarter last year was pretty good because we had some seasonally good weather. It's still a little early to kind of forecast what's going to be the outlook for the weather in the first quarter. These first couple of weeks have been more normal. But I would say, overall, for the full year, yes, we're optimistic that these trends that we saw, these first positive trends, are going to continue in 2013. The data, the housing data, the construction data, overall has been -- continued to be, for the most part, positive. You're seeing a lot of anecdotal information about -- in certain markets, the housing resale market strengthening. We've seen increases in new home construction permits and starts. So overall, I would say we're fairly optimistic. We've gotten through the fiscal cliff. Do we have some problems in a few months with a debt ceiling and other things that could derail this? Mortgage rates continue to be very positive. So we're optimistic, and we think we're going to have a good year in 2013 and in North America in Architectural.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

For 2012, did you grow above the industry rate? Did you do take share? And would do you expect to grow above the industry rate in -- on a pro forma basis in 2013?

Charles E. Bunch

I would say, in general, we were in line with industry trends in 2012. And in 2013, obviously, we'll get a bump from the acquisition activity that -- with Akzo North America. And I think we're well positioned to take advantage of the growth that we see overall for 2013.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And just a follow-up on your share repurchase intentions. You've talked about $500 million to $700 million once the Reverse Morris Trust is done. Is it your intention to get most of that done in the first half and then depending on what acquisitions are in the pipeline, increase that level of share repurchase in the second half of 2013?

David B. Navikas

I would say, Don, this is Dave, that the expectations there or that we would spread that activity, the share repurchase activity, out over the remainder of our 2013. So I would not envision it being loaded into the front half of the year.

Operator

Your next question comes from the line of Gregg Goodnight with UBS.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Modeling questions for Dave. First, cash contributions to pension in '13, do you expect them to be about what they were in '12 or...

David B. Navikas

Yes, Gregg. In 2012, our only cash contributions were to our non-U.S. plants, and we would expect the same situation in 2013. And in terms of amount, 2013 would be in line with 2012.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Also, on cash, the asbestos settlement has been in abeyance for quite a while. Would you expect any cash requirements for potential settlement in 2013 at all?

David B. Navikas

It's certainly a possibility, Gregg, I would say. If it is, it would likely be in the back half of the year.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Last question, if I could. The -- your portfolio transformation has gone well. It seems to be near completion. The obvious element in your portfolio that doesn't seem to fit with the rest is, obviously, the Glass component. Does Glass fill some long-term strategic niche in your portfolio? Or is that an area that might require some additional looking at by the company?

Charles E. Bunch

Well, as we talked about, the businesses in that segment are businesses that aren't in our core but have been contributors over the years, but we are -- we would be open to look at opportunities to create shareholder value. We think that we have begun to see the improvement in the flat glass business. This is tied more specifically from an end-use market to the commercial construction industry here in North America. We're seeing some of the early signs of improvement. We do have what we think is a good position in that business, good brand, as well as market position. So we think that there's an opportunity for further improvement in that business. Fiberglass, as we mentioned in the release, we have had some challenges tied to some global weakness in the business. In Europe, we are tied, as well in Asia, to the electronics industry, which has been weaker. So right now, we think that we're focused on the right things in the business, which are continuing to improve our operations and if opportunities present themselves in -- as we move forward, we'll continue to look at it.

Operator

Your next question comes from the line of Ghansham Panjabi with Robert W. Baird.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

For the 2 more profitable coatings end markets, aerospace and auto refinishing, how should we think about the outlook for the full year? And also was auto refinish a bit weaker than you initially thought it would be for the fourth quarter?

Charles E. Bunch

I would say for -- if we look at those, first, the Aerospace business, we had a very strong year in 2012. And we think that the industry on a global basis looks good in 2013. So we're looking for further improvement in our aerospace business. Military will probably not be as strong in terms of the end-use markets. But what we've seen here is commercial aviation continues to be strong. There is more -- better airline profitability globally, so we think the aerospace business looks good. In the refinish business, we had some weakness in the European market in light of the overall economic conditions there. But it is tied in the longer-term trends to global industry builds and the global car parts, which are growing. The automotive industry globally is a growth industry, and we're seeing that play out. So the longer-term trends are good for automotive refinish. We think we'll have a good year here in 2013. But Europe, obviously, was part of the story in 2012, with the weakness that we saw there.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then last quarter, your auto OEM production chart for the EMEA region is estimated at that 11% decline, I think, for the fourth quarter, do have a sense as to what the estimate is for the first quarter for that region?

Charles E. Bunch

Yes, it's going to be negative but not at that level because I think now we're seeing some -- we're still seeing negative trends in Europe but not an acceleration of the declines that we've really been experiencing now for 6 quarters.

Operator

Your next question comes from the line of Charles Dan with Morgan Stanley.

Charles A. Dan - Morgan Stanley, Research Division

Just looking at your geographic split, it seemed like North America was very strong. I was wondering if looking at your regional split, if you could see any impacts, positive or negative, from Hurricane Sandy?

Charles E. Bunch

No, I wouldn't say that any of the trends that we saw here in the fourth quarter could we attribute to that. Obviously, the 2 things that are probably going to play out here in 2013 will be the rebuilding or reconstruction activity that should help construction industry in the Northeast, as well as what happened to -- there were a lot of vehicles that were damaged or destroyed. And that should be a boost to the automotive industry, both in terms of the OEM and the refinish industry here in 2013. But I wouldn't say it's going to be the driving force, and it was really too early in the fourth quarter of 2012 to really see a trend there.

Operator

Your next question comes from James Sheehan of SunTrust.

James Sheehan - Deutsche Bank AG, Research Division

Chuck, I was just wondering if you could comment on the licensing deal with the Chinese company on TiO2. How big a portion of the overall reformulation effort is that now and how big do you think it could be in the future?

Charles E. Bunch

Well, the overall licensing agreement with Billions, I would say, is quite small so that -- and it really doesn't figure into the targets that we talk about for improving TiO2 productivity or usage in our formulas. I would say that neither the licensing revenue or the impact were -- on meeting our metrics were in any way significant. They are a supplier to PPG, but the things that we're talking about there are more long term in nature. There's no immediate benefit in terms of starting up the chloride production, and I think these things are events that will take place in the future.

James Sheehan - Deutsche Bank AG, Research Division

Just on the situation with housing starts and some of the macro data that you referred to earlier. I was wondering if you could comment on some of the PPG store inventory levels. Are you seeing any changes there that are reflecting some of this macro data? Or just what are you seeing in the inventories now?

Charles E. Bunch

Well, we try to keep our inventories in balance with the level of demand. And so as we get into the first quarter, we typically have inventory build in our Architectural business as we prepare for the busy season. And I would say even though the volume trends were positive for us in the fourth quarter in our own stores, it was nothing that we could -- we were having to make, let's say, unusual adjustments to inventory levels to meet what we saw out there. But obviously, positive trends, something that we're watching so that we feel we'll be fully prepared as we go into the season this year.

Operator

Your next question comes from the line of Kevin Hocevar with Northcoast Research.

Saul Ludwig - Northcoast Research

This is Saul in for Kevin today. A couple of specifics, if you could. Your total company had $57 million worth of sales improvement due to price. How much of that was in coatings? And what was the raw material dollar change, either up or down, in coatings in the fourth quarter?

Charles E. Bunch

Saul, if you look, I think we said in our prepared comments, that both glass and chemicals had negative pricing in the quarter. So all the coatings gains were primarily coatings -- or excuse me, all the pricing gains, primarily coatings oriented. We did see still inflation in the quarter. And for the full year, we saw inflation. So we're still trying to work through, Chuck mentioned earlier, a full offset of inflation over not only this year, but over the past 24 months.

Saul Ludwig - Northcoast Research

But in the quarter, Vince, was the inflation more or less than what you got in pricing?

Vincent J. Morales

It was -- they were fairly close. As Chuck mentioned, we're trying to get more -- they're fairly balanced now, but we do see more inflation coming early in the first quarter of 2013.

Saul Ludwig - Northcoast Research

Okay. And then a second question on Glass. How much of the earnings are equity income? And what was the equity income component this year versus last year, so we could separate what you earned from your operating businesses versus your equity contribution?

Charles E. Bunch

Even in a good year, Saul, the equity earnings don't account for more than 15% of Glass total earnings. They are more volatile because they're -- there's no sales impact or we don't control the costs. We were down several million dollars this year, primarily due to the fiberglass JVs, which are focused on the electronic market, which, as we mentioned earlier, remained weak. But that's the biggest JV structure we have in our glass segment.

Saul Ludwig - Northcoast Research

Of the $9 million that you earned, how much was the equity income, just a couple million dollars?

Charles E. Bunch

At best. And the fourth quarter, it was seasonally light just by nature.

Operator

Your next question comes from the line of Richie O'Reilly, Revere Associates.

Richard O'Reilly

A couple of follow-up questions, the first one in Glass. Do you still own the 40% in the auto glass business? And what's the status of that longer term?

Charles E. Bunch

We do own -- we've maintained our minority interest. It's actually 38%, and that is in our portfolio. We continue to have a good relationship with our -- the majority owners of the Kohlberg company. And right now, it's an ongoing business in our portfolio.

Richard O'Reilly

Okay. So you would need to have the other owners decide if they wanted to acquire the rest of the stake? Is that -- would it be their option?

Charles E. Bunch

Well, as we stated earlier, we're not going to go into all the details of our specific joint venture contracts. But right now, the business is operating successfully and continues in our portfolio.

Richard O'Reilly

Okay. Second, I'm going to try the Transitions announcement again, And Kevin earlier had started reading a sentence. But near the end of it, it talks about interest at one or more of the joint venture companies. Can you give us an idea what that is referring to? Is that regional or is it product line? Or I guess could you keep your overall interest in the -- your overall venture at 51% but change ownership of these sub-ventures?

Vincent J. Morales

Rich, as we mentioned earlier, I think everything we're going to say today on that is in the release.

Operator

And we have a follow-up question from the line of John Roberts with Buckingham Research.

John E. Roberts - The Buckingham Research Group Incorporated

Chuck, you mentioned U.S. automotive OEM in 2013 might benefit from the destroyed cars from the hurricane. Would most of that really be in the first quarter here? And you've already said that, I guess, it will be offset by the difficult comps against the Japanese tsunami effect.

Charles E. Bunch

I would say that we're not exactly sure when we're going to see the impact from that hurricane. The OEM business, it goes through several distribution layers. I would think that we're going to see more of that in the first half. I would think that by the middle of the year, any effects on at least in automotive from Hurricane Sandy should be evident. Now, it may take a little longer on the construction side of the equation. You may take, let's say, the full year to see all of the impact of the reconstruction activity. But I'm not sure that in the automotive side, you're going to see that all in the first quarter. But I would say most of that should be in the first half.

Operator

I would now like to turn the call back over to management for any closing remarks.

Vincent J. Morales

This is Vince Morales. I just like to thank everybody for your participation today. If there any further questions, please feel free to contact me in Investor Relations. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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