PPG Industries, Inc. (PPG) Earnings Call Transcript & Summary

Well, good morning, everyone. My name is P.J. Juvekar. And our next company is PPG. And from PPG, we have Michael McGarry, Chairman and CEO; also in the room is John Bruno from IR team. So Michael, thanks for your time. I really appreciate that PPG has come to our conference for several years, many years in a row now.

Yes. Right. You've always had a good group of customers and clients come. So we appreciate the opportunity to interact with a number of our investors.

So welcome. And how was your Thanksgiving holiday?

We had a good one. My daughter, as you know, is in New York City, so she came in. My son's out in Silicon Valley. So he came in. So we had the 4 of us together a nice Thanksgiving. And we have a lot of leftovers though because we had no other guests. So if anybody is looking for extra turkey, let me know.

Oh, great. Great. Well, let's launch into the conference and let's launch into discussion. I'll ask you some questions, then I want to leave enough time for Q&A from the audience. Just for people in the audience, thank you for dialing in. On your website, you will see a link. You can ask questions there, and they'll be e-mailed to me. And as I get, I'll read them out at the end.

So before I get into the segments, let me ask you a broader question to set the stage. People are wondering, investors are wondering, Michael, the impact of fresh lockdowns versus the industrial recovery. We were seeing that in autos and housing. Do you think we sort of power through that recovery during this lockdowns. How do you see this happening globally?

Well, we certainly see that the governments are a lot smarter this time around that it wasn't beneficial for them to have a stringent lockdown. And so they're being a lot more nuanced than what they allow to the open. So right now, we're not having any negative impacts from any of our countries around the world. The biggest challenge we have right now is India because of the respreading of the virus. But other than India, China is strong. Europe is -- despite all the lockdowns in Europe, we're still seeing solid demand there. Of course, the U.S. is pushing through this. I've been amazed at how Latin America has, despite their lack of hospitals and the amount of COVID cases they've had, they've just kind of powered through it. So actually, it's pretty much shaping up like we thought it would when we put out our 4Q guidance, which was a record guidance for us. P.J., I can't hear you.

Okay. P.J., can you hear us?

P.J., can you hear us? I don't know if the moderator can hear us right now, but we cannot hear P.J.

Hi, can you hear me now?

Now we can.

Now we can.

I accidentally muted myself -- not accidentally, muted myself, but I couldn't unmute for a minute. But anyway, thank you. What impact does it -- is it having in the auto industry? Would you say that -- we've been hearing that auto inventories are quite low. And talking to my auto analyst, these inventories were 25% below normal. But do you think that during December when they typically take downtime, that they'll continue to run their plants this year?

Yes. We had anticipated that they would run through the holidays because, as you know, we get a 90-day forecast, and I call that about 60% accurate, then we get a 60-day forecast, and it's about 80%. And then we get a 30-day forecast, which is actually pretty much locked in stone. So when we had our 90-day forecast back in October, they had projected a number of them running through the holidays because of the low inventories. And they are trying to do that. We do see a number of plants struggling for labor, a bunch of people out with COVID issues, but they're running. And right now, I would say demand is pretty much where we expected it to be.

Okay. So let me start with Performance Coatings. In September, you saw a flat month year-over-year, which is a nice improvement. How is architectural coatings doing? And talk a little bit about price and volume trends in your own stores versus independent dealer channels.

Well, we'll start with the easy one, the price. We've had not just an architectural, but as a company, we've had 14 quarters in a row of positive price. So we continue to have positive price in the stores and you should expect that to continue into 2021. Volumes are -- DIYs remains very strong, very steady. We're not exactly sure how much longer that's going to go. But right now, we see no indication that it's slowing down. And what you're seeing is trade side of the business is slowly getting better all the time. And we had anticipated that. And so we would think that would continue. Obviously, the fourth quarter is generally not a big trade month because of the weather, but it is showing improvement sequentially versus the third quarter. So that's a positive for us.

And looking into 2021. 2020 DIY was strong. People were stuck at home and they were painting. Do you think 2021 is the year where contractor business begins to come back? And when do you think that transition happening?

Well, right now, we're not anticipating any change in the retail, at least for the next 3 to 4 months because we think the lockdown and the vaccine is not going to be widely distributed until the second quarter is our estimation right now. So we still see retail being in a good spot for us all the way through the summer months. We'll have to wait and see how this plays out. We obviously see more comfort with people allowing contractors to come around. Now let's wait and see how that happens after the holidays. And are we going to get another spike in cases? I don't know. If you believe the commentary out there, they all anticipate another spike in cases. If they do that, then they'll be less -- they'll be more hesitant with the contractors. But right now, we're still anticipating that we're going to have a good first quarter in architectural, especially when you compare it on a year-over-year basis because if you remember, March 15 came and then things really slowed down from March 15 through middle of April until people figured out what the heck was going on.

Okay. Okay. And so first quarter, you should have good comps. Second quarter, maybe the comps get a little tougher because of the DIY activity. Would that be fair?

That would be our initial going in assumption. I think it's a little early to make that call because, as you know, DIY projects, it typically takes about 90 to 100 days to pick a color. We've seen them picking colors much quicker in this environment. Now whether that behavior will continue or not is still yet to be seen.

Okay. And the refinish business. There has been quite a lot of debate about refinish this year with miles driven whether rush hour traffic is important or not. What's your outlook with the lockdowns here near term? And then what's happening to pricing in the refinish channel with MSOs? I know MSOs are putting pressure on pricing. So talk about sort of trends in the pricing in refinish.

Yes. No, the pricing is not any different. We are establishing price. We've raised price. We've announced price increases in refinish. We anticipate no problem getting that. The MSOs may talk a big game, but at the end of the day, they actually need us. So that is not going to be a challenge for us. And as you know, most of our sales go through distribution, and then distribution to the MSO. So we're not selling too many of the MSOs on a direct basis, unlike maybe some of our competitors. So pricing will continue to go up. Plus in our refinish business, we have -- because of the decline in volume, we've gotten a lot more stringent on what I would call price leakage. So where somebody might order a truckload and come in and get 3 quarters of a truckload, we might have turned a blind eye to that and allowed them to get the truckload pricing. Now if they're not placing a full truckload, you're going out with LTL pricing. And so we've gotten a lot of what I call stealth price increases through this. So I'm really pleased with our refinish team from that standpoint. The other thing is there is -- they destocked so much in the second quarter. Now that's not happening. Volume matches -- what's going out the door is exactly what's happening on the streets. And what I see is a dichotomy in the market. In the suburbs, there is still -- everything is back to normal, and there's normal congestion in the suburbs. Now there is no congestion, no rush hour traffic in the major cities. And so that is taking definite volume out. But I see every week congestion getting a little bit better. And so maybe with the vaccine coming out early next year, we'll start to see that pick up. But I anticipate that we're going to have a better year in 2021 for refinish than we had in 2020.

Good point. So you're saying really, miles driven are being driven in the suburbs, whereas there is not as much rush hour or there are not as much urgency -- emergency to get back home or whatever. So that's really caused decline in accidents.

Yes, miles driven are down about 8% or 9%, but accidents are down more like 20%. So -- and unfortunately, totals are up 2% because of the higher speeds on the road. So that has taken a little bit out. That's 2%. We'd rather them have a car that's repairable. But again, the recovery is going to drive better volumes for next year. And of course, we're going to have positive price in that business again next year.

Great. Sticking to Performance Coatings. Any quick comment on aerospace and marine. I mean, I know with -- aerospace has been down, and you've talked about that on your quarterly call. But when do you think that begins to turn around? Is that 2021? Or is that 2022 event?

Well, I think you're going to have some improvement in 2021 because what you had is in the second quarter, third quarter, now the fourth quarter, you've had a destocking of that whole channel. And it starts with the OEMs and the aftermarket guys and the airline, even the airlines have cut back on the inventory they've held. Now they're to a point where they're nervous. And so we get calls from the airline saying, hey, our MRO guy doesn't appear to have much inventory, are you going to be able to cover us. We might have some of the big OEM guys calling us and say, hey, how are you shaping up on inventory. So I think they are at the very bottom now. So I do anticipate -- and it will be a double bounce back. So as they start to recover and start to fly more miles with the planes, they're going to start to have to stock up again. So I anticipate some recovery in 2021. And I anticipate the back half of 2021 to be a material improvement over the first half. So that's our initial going in thinking.

Yes, that business is important. It is one of your highest margin business. And as you see the recovery coming back, I think that should help PPG. Any comment on marine?

Yes. So when you think about marine, 2 things to think about. Clearly, new ship builds are going to continue to decrease. But the benefit for us is that the ship yards that are winning are in China. And we are better positioned in China than we are in Korea. So we're actually doing pretty well in that space. So despite the lower industry volumes, our volumes are actually hanging in there pretty well. So I'm actually pleased. I've challenged the team, can they grow in 2021. It's a little bit early to call that right now. But I have seen that we're doing much better in China than we're doing in Korea.

And a question on the raw materials. With lower oil prices, do you see a benefit in Industrial Coating margins? And to say maybe could they get back to high teens next year as oil continues to remain somewhat benign and you get this recovery.

Well, as you saw in our third quarter, P.J., our margins in the Industrial Coatings segment were in the teens -- in the upper teens, right? And I think that surprised a lot of people. We've always said, as we come out of these recoveries, we always learn more out of this and how to do more with less. And so assuming that oil stays in this $40 to $45 range, there is some sequential raw material inflation, but not a significant number that we can't either price or get productivity on. So right now, we're anticipating modest sequential raw material inflation, but not a material one.

Okay, okay. Now then turning to industrial segment. Again, let's start with autos. And how are you seeing auto demand around the world? I know China's again started strong going gangbusters. Europe, you saw a positive data point in September. October was negative again. So it's kind of back and forth there, hanging around there. And then U.S. seems like it's pretty decent growth here.

Yes. So China, as you saw, up 8% in October. November is starting very well there. So we anticipate positive growth for November. We've always said that we thought China would recover. If you remember, we go back even earlier in the year when we talked about the pandemic, people don't want to be in mass transit. They are driving more in China. Our refinish business is up in China. All our businesses are up. So right now, automobile sales in China are up. India started to recover until the last couple of weeks, but we anticipate that coming back. Europe, I think that's going to go through fits and starts, whereas I think the U.S. is -- they have very low inventories in the U.S. and they're having a hard time getting labor. So I think they're going to continue to make cars, and we're going to see some good demand for next year. And of course, Latin America, I've been so pleasantly surprised by the car demand in Latin America. I mean, with all the COVID cases, I thought it would be a little bit weaker. But somehow, they've just decided that they're going to spend some of their money on cars. So it's a good market for us. We're going to have a good year. We're going to finish really strong in automotive this year, and I think we're going to start out pretty well next year. And of course, I hope you get to asking about EV, so I won't talk about that. But ultimately, we're going to divorce ourselves from the build rate with -- as EVs grow.

Great. And that was my next question on EVs. And you talked about EVs, the coatings that the battery needs for thermal heat management. And your selling could be as much as 2 to 4x a regular car. Europe is already ahead of us in EVs, and they're really -- with the green plant there, making more EVs. I think there are 8 EV factories starting up in Europe. Well, you have a -- we have a new government being formed in Washington, D.C. with President Biden elect. He has a green plan too where he wants to install 0.5 million chargers by 2030 and reinstate the subsidy, particularly for the middle class. What are your expectations for EVs in U.S. and Europe, and particularly for PPG there?

Yes. P.J., so I would focus more first on China. They're going to do 25%, that's 7 million cars. So that's going to dwarf whatever happens in the U.S. Then in Europe, you have an aspirational goal of 25% EV. I don't think they're going to get there, but they're going to work hard to do that. So maybe that's another 3 million or 4 million cars. And then you're going to have the U.S. And I think in the U.S., people still drive a long way. And until they get better batteries with more range, there's still going to be a range anxiety. So even if they put in a bunch of chargers, that's not going to really drive adoption rates. So the U.S., I'm happy to talk about it, but I'm more looking at China and Europe. Now the beauty, of course, is it's not just the battery box. It's the gap fillers that we have. It's the battery fire protection coatings. So we just won yesterday, a second one in China. And right now, we're winning in this space, and we're really pleased with how that's going. And China is the only country that has a standard on battery fire protection, and we're the only ones qualified right now. So if China can push that through, that could be a significant win for PPG.

That's great. You mentioned that you're the only one who's qualified. I mean, what's your market share in EVs in general?

Well, I would say it's -- if you have to break it down by layer. So if it's the paint on the battery box, we have at least our same share that we have in OEM. If you think about the adhesives that close the battery box, I would say we're in that low teens kind of number because we're competing with all the other guys that make adhesives and sealants. Passive fire protection, we are winning in that space. Gap fillers, I would say that's another competitive space that we're in. And then ultimately, long term, we're trying to get into the binders and the anode and cathode coatings, which we think are a huge growth opportunity for us. That's longer term, 5 to 7 years out, but we're doing tests in that space right now. And we have a test in China coming up, and they're going to be making cars. And by the first quarter, they should have cars on the road running with our battery coating. So that's a longer term play, but another interesting one for us.

That's fantastic. That's great news for PPG shareholders. Can you talk a little bit about general industrial and potential for infrastructure bill. And again, sort of what we could see with the new administration there with infrastructure?

I think the infrastructure bill will be one of the first ones passed. And I think it will be meaningful. It will be a large bill. But what we saw the last time we went through this, shovel-ready doesn't really mean shovel-ready because on one hand, they say the bill's passed, but on the other hand they don't make it easier for the environmental permits to get approved. So they give on one hand and they take away on the other hand. But what I would tell you is we will see probably the heavy-duty equipment guys move quicker, and they're actually already talking about some positives and therein because of the ag market getting better. So I would say that we're going to probably see some improvement, but it probably won't be as much infrastructure driven as a fact that the housing market's getting better, they need more heavy-duty equipment. There will be some road construction. That all will be a positive. But at the end of the day, it will be a positive for PPG, not as good as the headlines that come out of DC.

Okay. And you mentioned road construction. Is that what drove your latest M&A?

No. Really what drove that is that's a property we've been seeking for a number of years. It's been in private equity hands a couple of times. We almost got it the last time. So we've studied it a lot. And what we really liked about it is on a couple of different levels. One, it's almost like an annuity. It has a large U.S. presence. It generates a fair amount of cash. It's very predictable business. It's maintenance. And even in the pandemic this year, it's only down 3%. And the only reason it was down is because our contractors had to figure out a way to get social distancing on the truck, that laser stripes. It wasn't because of demand, because the demand was there. So actually, the local DOTs and the U.S. government, those contracts are out there on a regular basis. But -- we've talked about it. Maybe you're aware some states are advocating going from a 4-inch stripe to a 6-inch stripe and reducing the distance between the stripes. That helps on this automated cruise control, the lane departure warnings and things like that. So that ties into our mobility play. And then ultimately, what -- when we talk to these guys, they couldn't figure out how to get into the mobility play. And what we're thinking about is how can we adjust the paint formulation for the stripping to help on the next-generation of autonomous driving. So I think that's another layer up on that, that we're focused on.

That's great. That's really forward thinking. And you paid what, roughly 11 to 12x EBITDA before synergies?

Yes, that would be possible that's -- it's before synergies. So it will be below 10x post synergies. And the other thing I would tell you is, they really have not done all that well on international. So we think there's an opportunity here to grow this thing internationally, and we'll have more to say about that when we have our first quarter call. But clearly, we think this is an avenue where this is a business that can still grow. They were primarily a U.S. focused management team, and we think there's some opportunities here.

And Michael, last few small businesses -- not small, but like electronics and appliances, but also packaging. And you gained significant share in packaging with the BPA-free coating. Is that sort of market share war behind us in packaging? Are we back to sort of steady state? And just any comments on electronics and appliances.

Well, as you know, electronic materials for us has been a home run. I mean, this work from home, people buying monitors, people buying keyboards, new office chairs, you name it, everything that people have been buying to outfit their home office comes with paint. And all the new phones that are coming out have all our OLEDs in it. All the new TVs coming out have the OLEDS. And I won't tell you which one because it's confidential information, but one of the guys that makes tablet type products is talking about doing that with OLEDs as well. So we have a continuing presence in this electronic material space that's been working for us. Appliances is the same thing. Pantry stocking, more eating from home, people upgrading their appliances. That's all positive for us. So those are all good trend lines. And right now, we're not anticipating a reversal in that in the first 6 months of next year. So that should continue to be a positive. I would tell you that overall, we're pleased with where we are in that space.

Great. And any comments on packaging with BPA-free coatings?

Yes, I think packaging is going to continue to be a growth market. I mean if you look at the cans, from a single-use plastics, there's more cans being built, more can plants being built out there. Right now, they're very focused on making sure they get enough coatings. So although they always like to talk about price because they're an OEM type buy. But at the end of the day, they are more focused on sustainability and how can we generate the next level of product that has substances of concern taken out of it. So they're about innovation more than they are about price. And volumes next year will be higher than volumes this year because the can plants, when they start up, they need products. So it's -- the 1 negative, though, I will share with you during the pandemic has been our small cans. Think about deodorants and saving creams and perishables like that, that has gone down, unfortunately, because people aren't staying as clean as they should be. So it's the way I would phrase that.

But they are drinking more coke and beer and other products.

Yes, except in Latin America. For some reason, our beer sales, they most not drink beer watching football down in Latin America at home. They most like the drinking in bars. So we have noticed that being a negative...

In bars?

Yes. That's about the only -- the only place we're seeing that is Latin America.

We need to make a trip down there. Well, Michael, PPG in past several years have relied heavily on M&A to create growth. What do you see in terms of deals and what's your expectation on organic growth, first? And then in terms of deals and what's the pipeline looking? You just made an acquisition this week recently or last week.

Yes. So if you think about our organic growth, it's certainly an area that is on the top of my radar. I talked about it with our leadership team, nonstop. It is an area that we need to do better in. I think it's an area that people are little bit -- how would I phrase this, people are not realizing that part of this issue is self cannibalization, right? So when we came out with the compact process and you put down multiple layers of paint at once, that automatically has less volume, but we're getting higher price for it. So when we launched MOONWALK for the refinish business, which will have slightly lower volumes because it will be a more efficient way of applying the paint, but we're getting higher price for it. When we come out with some of our new technologies for the high edge powder for industrial, slightly less powdered required, more efficient, but we're getting a higher price for it. So there is some amount of trade offs. But when I think about the things that are most exciting to me from an organic growth standpoint, one would, of course, be EV at the top of the list. The next one is we're working on applications -- new applications. So we have one called spray-in-place pipe where we're looking at all the underground piping that's in the U.S. that needs to be either replaced or repaired and how can we come out with a new way of repairing that. So we have some new trials going on. We have a trial going on in Cleveland. We have one going on in Seattle. And in these types -- new applications, we're trying to change the way people think about repairing underground piping. We have a number of other applications of polyureas that we're looking at that goes into cleaning for food plants. So I think we have a number of these new initiatives that we're working on that are exciting to me. And then, of course, there is the other one, which is not as exciting. Some of our peers are more focused on it, which is share growth through taking share away. That tends to lead to negative price. We've been very focused on value over volume. But certainly, we can do a better job in this area.

Right. Quickly on MOONWALK. You talked about that on the call. What's the penetration of MOONWALK product?

Well, I think the way to think about that, P.J., is twofold. One is we have about -- I want to say about 4,000 machines out there already. But more importantly, 25% of the machines that are out there are in shops that we didn't have before. So that's driving organic growth in the refinish business. And more importantly, if we can make more of these things, it's going to drive more share gain because the competitors shops that we don't have see this, and they want to come in and say, okay, when can I get my hands on one of these things? And of course, we have to balance that because our current customers want to be at the front of the queue, right? So we're trying to balance that. But it's certainly a good problem to have. Did you want to go back to M&A, by the way?

I do. And I will make this my last question because I'm getting quite a few questions via e-mail. I do want to get back to M&A. First of all, well, let's talk about use of cash. You did $600 million of debt paydown. Would you accelerate buybacks in 2021? And then I guess that buybacks depends on the M&A pipeline. And how do you see that?

So you saw our cash at the end of the third quarter was $2.1 billion, which was up more than what we would normally have. But we saw our line and if you remember on the call, I said I'd be disappointed if we didn't have a deal announced in the fourth quarter, we might not get it closed. And clearly, we're not going to get this closed in the fourth quarter. But we did get a deal announced. We do have a good, strong pipeline. So I would anticipate in the first quarter having some additional announcements. We do have the capacity to do it, both from a span of the businesses that we're looking at, but more importantly, from a cash standpoint. So the way I would frame it, P.J., is I would be highly disappointed if we bought back stock in 2021. So that's the way I'm thinking about it.

Okay. Great. I have some questions here, so they are e-mailed to me. So just bear with me, I'm going to get through these quickly. Could you talk about capital allocation priorities in the context of your current credit ratings with the Ennis-Flint deal. Although it's a modest size, do you plan on accelerating M&A? Are you going to take another look at auto OEM coatings? So kind of similar to what you talked about.

Yes. So I would tell you that M&A is at the top of the list. We're very comfortable where we are from a rating agency. We also think the rating agencies are very comfortable with the coatings companies making acquisitions. Obviously, we want to stay investment grade, but we still have room to maneuver even where we are now. And if you think about the latitude that the rating agencies gave to Sherwin when they bought Valspar, there's still a lot of room there. So I would tell you, we have a lot of flexibility. And if a deal came along, we would go after it even if it were -- made us drop a notch, and that would not bother me.

Any particular geographies that you're looking at, Michael? is it mostly in Asia?

It's mostly in the world. So -- ideally, we buy in China, but the multiples are just ridiculous. So -- then the next place we'd buy is India, but then the multiples are even more ridiculous. So what we've been able to do, if you look at the last couple of nice ones we've done, Hemmelrath, it had a global footprint. Whitford, it had a global footprint. This one with Ennis-Flint, it has a global footprint. So we're getting some growth in China. I mean, the Whitford acquisition, we've doubled our China business already. And we've only owned Whitford probably 24 months, maybe -- 18. So we have a great opportunity to continue to grow our sales in China through these acquisitions. The Hemmelrath acquisition allowed us to increase our share with Volkswagen, which is the #1 automobiles guy in the world. So I think we're in a good spot with acquisitions. And our pipeline is reflective of growth opportunities in either emerging regions because they have a footprint or because they're in a global space.

Great. The next question is, Michael, you spoke of autos being totaled. With cars these days getting packed full of expensive sensors and electronics, I get the sense that it is easier for cars to get totaled. Do you see that in your refinish business?

Yes. So if you look at the last couple of years, totals have increased from like 17% to 18% to 19%. This last month, they were at 21%. So there is that. But I think the current increase right now is not due to electronics. The current increase right now is due to the higher speeds on the road because of the less congestion on the road. So we anticipated dropping back down in that 17%, 18% kind of range after the pandemic is over.

Just my follow-up on that is refinish is considered sort of a low growth business? Do you think it could be a sort of a declining business if more and more, this connectivity of cars comes along?

No, I actually don't because one of the things that makes it more challenging and the reason why the big guys are winning so consistently is the cars end up with a hybrid of materials. So they might have a steel quarter panel. They might have aluminum hood. They might have a composite roof. And each one of those things need to be repaired, and it takes a sophisticated body shop to be able to handle those mixed metals. And so I actually think the big guys will continue to win in the space at the expense of any decline in volume. So right now that is not on my radar screen.

Okay, okay. The next question is, can you talk through your thoughts and rationale on pulling the 30-year bond tranche even though it had launched. Will you look at longer-tenured bonds again? Or was that action and insight into how you're thinking about your funding structure?

Well, I'm going to start, but I'll ask John Bruno, if I make a mistake to jump in, even though he's not on camera. That 30-year bond that we did was a one-off, and it came in at a net interest rate of like 1%. So if I got another time to borrow money at 1%, I'd take it. But by and large, most of the deals that we've done recently have been in that 3 to 5 to 7 to 10-year range. And I think that's more traditional. This was just a one-off opportunity that we could not pass up because it was too cheap. John, did I get that right?

Absolutely. It was being opportunistic.

Okay. The next question is on Boeing and aero defense. We saw that GE, which is the big aero engine supplier, has cut yet again its workforce citing expectation of continued volume challenges. Do you have any read-throughs in regards to that end market and specifically for Boeing?

Well, I mean, we obviously know exactly what the build rates are for the 737, the 787 and the freighter traffic that they have. So I don't think we have any news that is different than what GE has. I think the difference is we reacted instantaneously and maybe some other people took a different time frame to make changes. The other thing is I think we have a pretty large-sized defense business, and we are growing share in that defense business. So out of the last 8 or 9 programs that have come through, we've won all, but one. And our share on the F-35 is continuing to grow significantly. So you probably remember, we bought this little company called Texstars down in Texas. We primarily bought them because we needed additional capacity to build canopies for the F-35. We had a very, very small market share. And then now we're up to -- we've gone from basically 0 to 50% on the F-35 canopy. And that has allowed us to build more sealants. We've captured more sealants on the F-35. We've always had a great presence on the classified defense products on that plane to keep it hidden and invisible from radar. So our share on the F-35 just keeps going up and up and up. And of course, it's a very massive defense program.

Great. One question from me is on TiO2. TiO2 has been a commodity that didn't get hit that much during the pandemic, not a whole lot of supply coming online. It seems like it's not -- prices aren't flying back up like they did in 2010, but they're beginning to inch back up. What's your outlook on TiO2?

Well, P.J., I'm going to have to be a little guarded here because certainly the prices should have come down during the pandemic. But what that tells me is that they shouldn't be going up post pandemic. I would tell you right now, TiO2 is not on my radar screen about things to worry about. We have a great relationship with our Lomon Billions partner. We also continue to take TiO2 out through other technologies. And I would tell you, overall, we're very comfortable with where we sit on from a TiO2 standpoint.

And one of the things, Michael, that a lot of CEOs are talking about is regionalization of supply chain because after COVID all the supply chains were exposed, people were concerned about getting raw materials. Paints is a little different because you don't ship product far, but you may be getting some raw materials from other areas such as TiO2 and maybe it doesn't travel as much. But can you just talk about how do you see either you or your customers sort of making sure that supply chains are tight, and in case of another, I don't want to say pandemic, but in the case of another event that plants can keep running.

Yes. P.J., I'm not worried about that. We're a buy local, make local, sell local business, right? So if we have a wheel guy decide that he's going to shut down his plant in China and move it to the U.S., we're still going to have that business. So the supply chains that I think are going to be impacted by trying to shorten the supply chains will be things that we don't paint. So think about medical equipment. We do paint a little bit of it, but it's not a huge number. Think about PPE. We don't paint a lot of PPE, so that's not. Pharmaceuticals, we don't paint hardly any of that stuff unless it's a storage bin for the equipment. So by and large, I don't think we're going to be impacted by that. I think it will be very small things, high value items. And basically, we'll paint it in whatever region it's made in if it needs paint.

In a couple of minutes I have a couple of quick questions. In terms of M&A, are you looking at buying some store chains like you have in the past? I know you do have some excess capacity in the architectural business, manufacturing capacity, maybe you shut some down. But are you looking to get into more stores or buy out some changes?

I think that depends on the market, right? So in the U.S., that's probably not an area of focus because we're trying to change the U.S. market from a store model to a click-and-collect and a click-and-deliver model. But in some markets like Mexico, we're adding stores. This year, we're probably going to add over 100 stores. We relocated more than 200 stores of better properties in France. We would be happy to continue to buy out some of the smaller dealers there. Same thing in the U.K. So it depends really by country on how we look at that. We just did one in Australia, probably March or April. These aren't -- they would never show up on your radar screen. But we do look at it if it makes sense in the local market, but it's a very local decision.

It's interesting. I know you have a smaller footprint than your competitors in terms of number of stores. And you've been trying to go towards this electronic purchases. And this click-and-buy or click-and-deliver that you talked about, has that accelerated during the pandemic, like other things have been accelerated, work from home or whatever use of Zoom? Are people more -- especially the contractors, are they more comfortable buying, looking at something on their phone and then clicking it?

Well, they're getting more comfortable. I don't know that they are comfortable, but they are getting more comfortable. I'd say we still have a lot of orders placed over the phone. But we have a lot of tools out there for them to use. But I think what you're going to see is an evolution, right? As these older painters retire and the younger painters come along, you'll see these younger painters more likely to use their phones for those kind of things. But we've set up a couple of test markets right now. And in one of the markets we closed a few stores and increased the size of one, and then we added a 24-hour service center. So that no matter when you place your order, we will guarantee delivery at 7:00 a.m. at the job site. And we put up service level agreements. If you order by 10:00 a.m., it will be there at 1:00 p.m. when you come back from lunch. If you order at 2:00, it will be there before you go home for the day. So we're trying to make this as seamless as possible for them to order product without having to go into the store. And right now, it's -- we're only a couple of months into the trial. But it looks good, but we'll have to wait and see how that all pans out.

That's great. And my final question to you. Any comments on heavy machinery? You mentioned, which is interesting is ag seems to be getting better. Well, commodity prices, grain prices have gone up. Can you just comment on the ag market?

Yes. We just see that they're placing more orders. The forward look for them seems to be better, and they're willing to try new things. So we have a number of products that they're out there trying to drive productivity in their own space. So I'm a little bit more bullish on the heavy-duty equipment in ag side than I was 3 or 4 months ago.

Great. Well, Michael, we're almost at the end of our time. It's been 45 minutes. But I do want to ask you something about the month of December. Obviously, I'm sure you have a lot of budgeting plans and lot of board meetings and all that. But once you get through it, what's the plan for rest of the year? Are you going to take any time off?

Yes. I'll take some time off right before Christmas. My mother actually turns 90 on Christmas Day. And she tells me that if I don't come down to Houston and visit her, that I'll be written out of the will. So I'm planning on going down to Houston to spend some time with my mother for Christmas. So -- and the kids are coming in, so everybody will show up in Houston to celebrate. We haven't figured out exactly how this birthday party is going to work, but we're going to -- we'll figure it out. Hopefully, it'll be a nice 70-degree day down in Houston, and we can do everything outside.

Great. Well, that sounds like a great plan. Congratulations to your mother, and I hope you have a good family gathering. Thank you so much, and wish you all the best.

Thank you, P.J. Thanks for organizing this.

Thank you. And thanks for everyone for dialing in.