PPG Industries Inc (PPG) Q1 2020 earnings call dated Apr. 28, 2020
Corporate Participants:
John Bruno — Director, Investor Relations
Michael H. McGarry — Chairman and Chief Executive Officer
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Analysts:
David Begleiter — Deutsche Bank — Analyst
Ghansham Panjabi — Robert W. Baird — Analyst
Christopher Parkinson — Credit Suisse — Analyst
Kevin McCarthy — Vertical Research Partners — Analyst
John Roberts — UBS Investment Bank — Analyst
Michael Sison — Wells Fargo — Analyst
Robert Koort — Goldman Sachs — Analyst
Frank Mitsch — Fermium Research — Analyst
P.J. Juvekar — Citi — Analyst
Jeff Zekauskas — J.P. Morgan — Analyst
Vincent Andrews — Morgan Stanley — Analyst
Kevin Hocevar — Northcoast Research — Analyst
Arun Viswanathan — RBC Capital Markets — Analyst
Duffy Fischer — Barclays Capital, Inc. — Analyst
Laurence Alexander — Jefferies — Analyst
Michael Harrison — Seaport Global Securities — Analyst
Presentation:
Operator
Good morning, and welcome to the PPG Industries First Quarter 2020 Earnings Conference Call. My name is Ellisa, and I will be your conference specialist today. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to John Bruno, Director of Investor Relations. Please go ahead.
John Bruno — Director, Investor Relations
Thank you, and good morning, everyone. Once again, this is John Bruno. We appreciate your continued interest in PPG and welcome you to our first quarter 2020 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 US equity markets closed on Monday, April 27, 2020.
I will remind everyone that we have posted detailed commentary and the company 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 opening comments, Michael and Vince will make shortly. Following management’s perspective on the company’s results for the quarter, we will move to a Q&A session.
Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company’s current view of future events and their potential effect on PPG’s operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company 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.
Now let me introduce PPG Chairman and CEO, Michael McGarry.
Michael H. McGarry — Chairman and Chief Executive Officer
Thank you, John, and good morning, everyone. I’d like to welcome everyone to our first quarter 2020 earnings call. First, and most importantly though, I hope you and your loved ones are safe and healthy. Never before had we experienced a crisis as broad as the COVID-19 pandemic. PPG operates in more than 70 countries around the world, and every community where we operate has been affected by this virus.
We have 12 factories in China, with one located in Wuhan. So our PPG people have been managing through this challenge since January, working around the clock to protect our people and our customers. Throughout this crisis, we frequently hear about PPG employees going the extra mile at work and in their communities. I could not be more proud of our employees around the world who worked tirelessly to keep each other safe and healthy throughout this unprecedented time. At our locations that had remained operational, we have and will continue to employ stringent health and safety measures, which are, at a minimum, in alignment with the local health and government guidelines.
From a business perspective, we will not know the full impact of the pandemic on PPG for some time. But we are working with urgency and have taken proactive actions to limit the impact as much as possible to employees, customers and shareholders, while also continuing to support the communities and support agencies and need. Given the breadth and urgent community needs resulting from the COVID prices, PPG has increased and accelerating our charitable contributions around the world. Last week, PPG and the PPG Foundation announced plans to contribute more than $1.5 million to organizations supporting the immediate community relief efforts and emerging recovery needs amid the pandemic.
We’re also donating personal protective equipment, anti-bacterial coatings and other resources where help is needed. Our contribution will touch each major region we serve. We believe that even as we respond to difficult market and business conditions, it is vital to remain an active partner in our communities and help our most vulnerable neighbors at this critical time.
Now let me turn to our financial results. Last evening, we reported first quarter 2020 financial results. For the first quarter, our net sales were approximately $3.4 billion, and our adjusted earnings per diluted share from continuing operations were $1.19. These results included a significant impact on the business interruption caused by the COVID pandemic. We estimate that our sales and earnings were — per diluted share were unfavorably impacted from the effects of the pandemic by approximately $225 million and $0.35, respectively.
For the first 10 weeks of the quarter, excluding our business in China, most of our businesses and major regions were performing at least at the financial expectations we set in January. During the second half of March, we saw a rapid and wide-ranging deterioration in global demand. Many of our large OEM customers were forced to shut down. A number of architectural paint stores were mandated to close or materially alter the way they service customers. And miles driven and the number of commercial flights fell sharply with many countries and states imposing stay-at-home orders. This materially impact the demand of our customers’ products and services. And in a matter of days, led to a quick and steep decline in sales for our automotive OEM, automotive refinish, aerospace and certain parts of our global architectural business. These lower demand levels have continued well into April.
We took immediate decisive actions to help mitigate the lower sales activity, which included across-the-board salary reductions with our senior leaders impacted the most, temporary shutdowns of various manufacturing and distribution operations, temporary employee furloughs, reduced spending across all businesses and functions. We also deferred many non-essential capital expenditures. While many of these actions were difficult, they are necessary basis of breadth and uncertain duration of the crisis. Many of these mitigation actions were implemented during March. So only had a modest impact in the first quarter. We expect these mitigation actions that have more meaningful impact in the second quarter.
From a liquidity perspective, our record level operating cash flow in 2019 and historical disciplined approach to capital allocation has our balance sheet properly positioned to weather the crisis. We will review more details on our forward looking expectations in a few minutes. But let me quickly summarize the results for the first quarter. In aggregate, our net sales in constant currency were down 5% compared to the prior year. Sales volumes were down 8%, with about 6% of that decline estimated to be associated with the pandemic. Our selling prices were 1.4% higher with broader increases in our Performance Coatings reporting segment and more targeted activity and industrial coatings.
Last, net sales were negatively impacted by unfavorable currency translation of more than 2% or about $75 million, as the US dollar generally strengthened versus other emerging and major currencies. We expect unfavorable currency translation to continue into the second quarter and be in the range of $130 million to $150 million, based on recent exchange rates.
Looking at some of the business trends in the first quarter. In China, sales were down about 30%. Most of our end use markets experienced significantly lower demand, including automotive OEM or regional builds were down about 50% in the first quarter. Since early March, in China, we have seen a measured recovery in demand patterns. Our factories in China have been running at 70% to 80% of capacity utilization for several weeks, moving closer to our 2019 levels and mirroring the needs of our customers demand. We’ve also learned a lot from the restart in China, which we’ll be able to leverage and optimize as other countries are beginning to restart their economies over the coming weeks.
In other parts of Asia, our business performed solidly in the first 10 weeks of the quarter and till the pandemic spreads, which impacted several countries including Australia, India and South Korea. In aggregate, sales volumes in the Asia Pacific region were down 20% in the first quarter. In aggregate, the EMEA’s region sales volumes declined by high single-digit percentage compared to the previous year, driven by a lower demand in most end use markets through the pandemic. The automotive OEM, automotive refinish and industrial coatings business experienced the steepest declines due to customer shutdowns.
Through mid-March, organic sales were slightly higher compared to prior year in the architectural EMEA coatings business, but then fell sharply as many countries in Southern Europe, including France mandated closures of retail paint stores. Our architectural business in Northern Europe performed solidly for the entire quarter, and our protective and marine coatings business had modest sales volumes growth, reflecting that a portion of these businesses are late cycle in nature.
In the US and Canada region, sales volumes were down a mid-single digit percentage, including the unfavorable impact from the pandemic. Sales volumes were strong in certain end use markets, including our packaging and architectural DIY coatings businesses, which we believe both will be more resilient through this crisis. In the US, the automotive OEM and refinish businesses were most impacted by the pandemic in the first quarter, with the vast majority of this unfavorable impact occurring in March.
Finally, in our Latin America region, sales volumes were modestly lower down a single-digit percentage, as the pandemic had less impact from this region during the quarter. We saw a positive sales volume growth in both packaging coatings and Mexican PPG Comex businesses during the first quarter. During the quarter, about 25 new concessionaire stores opened in Mexico, bringing the total to approximately 4,800 stores, which I would remind you has a much higher variable cost structure.
From an earnings perspective, our first quarter adjusted earnings per diluted share of $1.19 is lower by $0.19 compared to the prior first quarter. As I said earlier, the estimated impact from COVID-19 reduced our adjusted EPS by $0.35. Despite our sales volumes being lower by 8%, our gross profit margin rose to 43.5% or 70 basis points higher on a year-over-year basis. This was supported by higher selling prices and continued excellent progress on cost savings from our previously announced restructuring programs.
Unfavorable foreign currency translation during the quarter lowered earnings by more than $10 million, which was impacted by a broad number of currency devaluating against the dollar, including the Mexican peso that fell by about 20% in the quarter.
Now let me ask Vince to provide some commentary on our liquidity position and some thoughts for the second quarter.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Thank you, Michael. I also want to echo Michael’s comments, I hope everybody is healthy and remaining safe. With regards to our financials, first, let me discuss our balance sheet. As we’ve discussed many times on these calls, we have a conservative approach to managing our balance sheet, which is especially important during these times. As a quick reconciliation, I’ll remind everyone that we ended 2019 with approximately $1.3 billion of cash and short-term investments on hand. We supplemented our beginning of the year cash balance with an $800 million mid-March borrowing from our revolving credit facility. This borrowing was completed out of an abundance of caution and our expectation of uncertainty in the debt capital markets. We subsequently ended March with an elevated cash and short-term investments balance of about $1.9 billion, including the $800 million revolver proceeds.
As we recently reported in mid-April, the company entered into a $1.5 billion, 364-day term loan and utilized a portion of the proceeds to fully repay the revolver borrowing, with remaining $700 million in proceeds further supplementing our quarter end cash balance. The company’s $2.2 billion revolving credit facility is currently undrawn. These strategic actions provide ample liquidity to weather this crisis for an extended period of time.
Also during the first quarter, our commercial team has heightened their focus on cash. As a result, we lowered our working capital as a percent of sales by 120 basis points versus the first quarter of 2019. This included strong quarter-end accounts receivable collections and a rapid response to lowering demand through the minimization of our seasonal inventory build.
With regards to receivables, we did increase our bad debt reserve during the first quarter, reflecting uncertainty regarding the breadth of the crisis and eventual customers’ liquidity, especially for many small customers globally. To date, through April, near the end of April, we haven’t experienced any unusual bad debt trends and we will monitor this reserve accordingly.
In the second quarter, we plan to continue to optimize our cash and overall liquidity. With respect to working capital, we expect to draw down our finished goods inventory and are dramatically minimizing the purchases of raw materials based on our reduced manufacturing operating rates. This reflects the current lower coatings demand we are experiencing.
With respect to cash uses, as Michael mentioned, first is capital spending, and we are deferring all non-essential capital spending and currently anticipate full-year capex in the range of $200 million to $250 million. Second, we remain committed to rewarding our shareholders through dividend payments. And on April 16, our Board approved a $0.51 per share of dividend to be paid in the second quarter. Next, we will continue to look to optimize our short and long-term debt portfolio basis to capital debt markets, and we’ve created flexibility to access these markets at the time of our choosing. Finally, given the low level of commercial visibility, we are currently prioritizing maintaining ample liquidity over acquisitions and share repurchases. We’ll continue to monitor the external environment here.
Before I turn it back to Michael, I’ll provide an update on what we are expecting commercially for the second quarter. As we look ahead, overall, we are currently experiencing and continue to expect global economic activity to significantly contract in the second quarter. We then anticipate moderate demand improvement from this lower base level of demand as the year progresses and as economies begin the process of getting restarted.
We have provided in today’s presentation materials, our expected qualitative second quarter and pace of recovery expectations for each of our coatings businesses. These expectations are based on our past experience and what we are currently hearing from our customers relative to their potential to restart and our mid-term order books.
Overall, we expect our aggregate coating volumes to decline 30% to 35% in the second quarter, with shutdown continuing throughout April and a large portion of May and measured startup of activity later in the quarter. These estimates are obviously based on what we know today and will likely change as the quarter progresses. However, we wanted to provide as much real-time information as reasonable to the investment community.
The highest rates of demand decline will be in the US and Europe, followed by Latin America and partially offset by the early recovery underway in China. As detailed on the presentation slide, we’re expecting the packaging coatings, architectural DIY, protective and marine coatings businesses to be more resilient. Also some sub-segments in the general industrial business are expected to be resilient or even possibly grow. However, this will be more than offset by weak demand and other general industrial sub-segments, activity declines in trade or professional painting and very weak demand in automotive refinish and automotive OEM. Aerospace, new build and aftermarket sub segments are also very weak and partially offset by growth in military, which represents about 30% of PPG’s aerospace business.
A few data points and anecdotes with regards to these assumptions. Global industry auto builds are expected to be down about 50% year-over-year in the second quarter. We do expect global auto builds to begin to recover from this very depressed level much more quickly than other end markets and are evidencing this currently in China, but we still expect global auto builds to be done notably for the full year. Both packaging coatings and architectural DIY have experienced strong margins — strong March, excuse me, and good April demand, matching similar trends that occurred in early 2008, 2009 great recession.
With stay-at-home mandates currently in place in many countries, miles driven is expected to significantly fall year-over-year for the entire second quarter. Many of our body shop customers in Europe and the US have been operating at less than 50% of their capacity for the past four to six weeks. Architectural trade and professional painting is currently impacted by the regional economic slowdowns. And after initial surge, as the regional quarantine mandates are lifted, demand is expected to remain somewhat subdued following more of a W-shaped recovery. About 30% of professional trade painting is for commercial or non-residential activity. Maintenance represents the majority of this activity and we anticipate weak commercial maintenance with many of the larger key end use markets such as hotels and hospitality, retail, restaurants, office complexes, universities and airports likely deferring painting. Start of newbuild commercial projects will continue, but we expect an air pocket of activity once these in-flight projects are completed, likely later this year or in early 2021.
With regards to residential painting, which is about 70% of overall demand. The largest portion is also repainting, and some portion of this will likely be deferred or canceled. This includes the effect of social distancing, along with end consumers repairing their individual balance sheets, which we also expect to have a knock-on effect in slow new home construction after the current in-process construction is complete.
As I stated earlier, some of these lower trade business impacts will be offset by higher DIY, similar to what happened in 2009. Also, albeit still very small, we are seeing triple-digit percentage increases in digital use by consumers. And our strategic move to more of a delivery model for architectural painting is being validated as most in the industry are now touting this as the primary fulfillment option.
Finally, miles flown globally are down dramatically and demand for aerospace products is heavily impacted, especially in the aftermarket. Also some of our OEM customers are beginning to resume production, but delivery rates are expected to be lower than pre-crisis levels. And therefore, we expect an extended recovery timeline in our commercial aerospace OEM and aftermarket businesses. In addition, we have included some details what we are currently experiencing during the early stages of the China pandemic recovery in our presentation materials.
Regionally, demand continues to improve in China and is expected to return to growth in the second half of 2020. Consistent with the timing from the great recession, year-over-year auto builds in China are expected to be comparable in the second quarter. And retail auto sales have been increasing on a sequential basis now for a number of weeks and approaching levels close to 2019. Other end use markets in China are in different stages of recovery, but all are directionally improving. Also, data shows that traffic congestion in China is nearing 2019 levels, which should aid demand for auto refinish.
Finally, we provided as further reference our aggregate coatings segment earnings trajectory during the great recession. During the depth of that recession, which was the first quarter of 2009, our coatings earnings declined about 66% on a volume decline of just over 20%. The current shape of this pandemic related economic crisis is broader given the abrupt near full stop of certain economic activity, which is why we expect volumes to be down 30% to 35% in the second quarter of 2020.
As Michael mentioned, we are continuing to aggressively manage all elements of costs within our business, especially our variable and semi-variable costs. Approximately two-thirds of our cost structure is variable or semi-variable. Also we continue to execute against our restructuring programs and expect about $20 million of incremental savings to be realized in the second quarter. We have accelerated many of the actions in these programs and now expect to achieve higher savings for the full year of 2020 of about $80 million to $90 million.
We continue to closely monitor the macroeconomic environment, and we’ll be fully prepared to implement further cost reduction actions, if necessary. Our target is similar to 2009 time period, where we exited the great recession as a much stronger company. Finally, due to the heightened level of uncertainty and lack of mid-term visibility, we have suspended all financial guidance previously provided.
Now, I’ll turn it back over to Michael for some final thoughts.
Michael H. McGarry — Chairman and Chief Executive Officer
Thank you, Vince. As we look ahead in the coming quarters, we will be faced with an evolving and uncertain economic environment. It is too early to predict the full picture and impact of the coronavirus. In light of this uncertainty, though, we continue to carefully reduce and manage costs and focus on cash generation, identify additional ways to simplify and streamline the business processes and work with our customers to meet their needs. As the environment begins to stabilize, we will have opportunities to create more value and fully leverage our scale for the benefit of our shareholders, customers and employees.
I’m confident that our team will deliver by using our diverse global footprint and continuing our focus on cash, margin management and earnings. While we will be prudent and defer some capital expenditures, we are continuing others that will help us support future organic growth. In addition, we remain committed to research and development investments in new technologies and digitization, which has proved to be effective with our customers as we exit this crisis.
Most importantly, however, is that PPG people are committed to operating safely and providing the products and services that our customers count on, and it’s what inspires us and we call it the PPG way. We will continue to prioritize the safety and well-being of our employees and support the communities where we do business. Finally, as I recently stated during our annual meeting, at the center of our company’s purpose statement is a commitment to protect and beautify the world. Today, the word protect has taken on even greater significance to all of us. We are focused on protecting our people, our customers and all of our stakeholders. I’m confident that with the continued efforts of our people around the world, we will get through this unprecedented time together. Thank you for your continued confidence in PPG.
This concludes our prepared remarks. And now, Ellisa, would you please open the line for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Begleiter of Deutsche Bank. Please go ahead.
David Begleiter — Deutsche Bank — Analyst
Thank you. Good morning. Michael and Vince, how should we think about detrimental margins both in Q2 and in the back half of the year? There were quite high in Q1. I suspect they will be high in Q2, but perhaps lower in the back half of the year.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Good morning, David. How are you?
David Begleiter — Deutsche Bank — Analyst
Good. Thank you.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
This is Vince. I think one of the markers I’d look at is what we provided in the earnings information relative to Q1. And we had about $90 million lower of segment earnings on $225 million lower sales for the segments. So the decremental margins there were a bit more than we’re accustomed to. But they reflected a somewhat non-traditional and rapid decline in demand. A couple of points. We do have, as I mentioned, the high variable cost model in many of our businesses. As we look at Q2, though, just due to the nature of this crisis, we did — we are effectively paying our employees for those have been furloughed for their first two weeks. So it’s going to temper somewhat our ability to react to the lower demand on a cost basis. Also given the staggered timelines of recovery by each of the regions, some of our businesses aren’t able to as aggressively manage some of the cost falls, because we need global support as China starting back up. But all that being said, I think, we’re hoping to do better than what we did in Q1 relative to the decrements, David. So we’re targeting a better or an improved decremental in Q2 than we had in Q1.
David Begleiter — Deutsche Bank — Analyst
Very helpful. And Michael, just in the back half of the year, if the case recovery occurs as you expect, would you expect the 30%-plus volume decline in Q2 to be — could they be cut in half in Q3, perhaps down 10% to 15% [Phonetic] year-over-year?
Michael H. McGarry — Chairman and Chief Executive Officer
But, David, I think it’s a little early to predict that. We see a lot of positive signs in China. Now, of course, China has a lot more ability to control their environment than we do here in the States. They have apps that allow people to say that they’re good to go into restaurants. Whether or not we develop anything like that here in the States will be open to further discussion. But I would tell you, everything I see in China, miles driven are up, flights in China are more full every day. There is more intra-China flights. So I see a lot of positives. But I think it’s just too early to predict that.
David Begleiter — Deutsche Bank — Analyst
Thank you very much.
Operator
Your next question today comes from Ghansham Panjabi of RW Baird. Please go ahead.
Ghansham Panjabi — Robert W. Baird — Analyst
Yes, good morning. Thank you. And I hope everyone is doing well.
Michael H. McGarry — Chairman and Chief Executive Officer
We are indeed. Thank you, Ghansham.
Ghansham Panjabi — Robert W. Baird — Analyst
Good to hear. So I guess, first off, on your outlook for 2Q volumes down 30% to 35%. Michael, just give us a sense as to how much of that decline is due to customers being flat out just shut down for parts of the quarter? And related to that, how do you expect volumes to kind of play out by the month? I guess, I’m asking because it looks like you’re baking in some level of improvement in June.
Michael H. McGarry — Chairman and Chief Executive Officer
Sure. And really if you think about it by the major segments, our OEM guys are down in Europe and the US, and they won’t be restarting until May 18th. And even when they do come up, they told us that they’re going to run at slower rates as they try to figure out how to maintain the social distancing. So we factor that in. The second one, of course, is our large OEM Airbus and Boeing customers, Boeing has taken an extended period of downtime, Airbus is back up and running, but they each have cut their production rates. So that has an impact And of course, MRO for the airline business is still unknown, right? So we’re going to wait and see. The good news is, there are planes flying, even if they’re flying empty, they will need MRO. So we’ll be watching that carefully.
If you look at refinish, I’ve noticed, and if you look at the gasoline sales, last week gasoline sales have improved. So people are starting to drive more. What we’ll be really looking for is congestion to improve, so get back to a normal rush hour in the morning, rush hour in the afternoon, that will be important to our business. So I think those are the most important things. If you look at the rest of our customers, they’re not really shutdown. They’re just having to moderate their production rates for the time being. So their ability to come back quicker will probably be likely.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Hi, Ghansham, we are seeing staggered start-ups by region, different parts of our business. It’s very public in the periodicals. So that we’re making our best guess of what that’s going to look like as we get further into the quarter here.
Ghansham Panjabi — Robert W. Baird — Analyst
Okay. And I guess from my second question, on slide 11, you basically have the financial crisis playbook. And so, looking specifically at 4Q 2008 and the first quarter of 2009, it looks like EBIT decline between 3 to 4 times the rate of volume declines. Obviously, the business portfolio changed meaningfully since then. Can you just give us some insight on how the changes may — the changes may — in the portfolio may change the magnitude of these declines?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah. We included on slide 11, Ghansham, is the coating segments only. So well, we have different regional splits and the businesses are different — a little bit different in size than they were then. And this is the coatings business only. As you can see, volumes were down. Again, as I mentioned in my prepared remarks, about 20% in the first quarter of ’09. Segment earnings were off over 60%. There hasn’t been, what I’d say a significant shift. We have lowered our breakeven points in many of our businesses with the restructurings we’ve done in the past couple of years. But this crisis is broader than what we saw in ’09. In ’09, crisis was centered on housing and auto. This obviously affect some of our aftermarket businesses that were impacted, but not to the degree they are. So it’s really hard to draw complete comparison. But the point I’d make is we did lower our breakevens in many of these businesses. So we’re trying to manage around that.
Ghansham Panjabi — Robert W. Baird — Analyst
Thanks so much.
Operator
The next question today comes from Christopher Parkinson of Credit Suisse. Please go ahead.
Christopher Parkinson — Credit Suisse — Analyst
Great. Thank you. Hopefully, everybody is doing well. Just very quickly, on the raw material fronts, you’ve discussed depleting inventory due to the weaker demand environment. Can you just discuss roughly on your implied raw material savings and whether or not you’ll actually see the benefits in 2Q? Or if this is more — this is going to be more of a second half and potentially in the 1Q ’21 story. Just any color on what you expect by raw basket would be incredibly helpful. Thank you.
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah. So, Christopher, the lower raw materials will not have a material impact on Q2. We’re going to be buying very few raw materials. We were coming into our busy point of the season, right? And the plants were gearing up for a regular paint season. So inventories were moving up as they always do at that period of time. So now with lower demand rates, we have plenty of inventory. So the plants that we will be starting up, we’ll be running at lower rates. And plus, when you think about it from a LIFO and FIFO standpoint, a lot of those raw materials don’t flow through for 50 days or 60 days. So there will be minimal impact in Q2. You should expect to see much more impact in Q3 in the back half of the year.
Christopher Parkinson — Credit Suisse — Analyst
Thank you. And just a quick follow-up. Just on packaging, it does appear you’re trending fairly well in the US and EMEA, but you’re still experiencing, or I’d say a little bit of noise in Asia. And just China is improving. One would assume that’s now Southeast Asia. Can you just quickly run through just the globally food versus beverage? And then just highlight on what’s going on in Asia on a go-forward basis, please? Thank you very much.
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah. So beverage is continuing to be strong. You probably saw the bev can numbers in the US, they were up 8% in the first quarter. Food was up 3%. Beverage up in Europe is up low-single digits. Food is recovering. They had a bad year last year because of a weak harvest, so that we expect them to be up low to mid single-digits as well. We are seeing recovery in China. So that’s providing some good tailwinds. So — and then the other thing that you probably don’t put a lot of recognition in, but aerosols is a good segment for us. And so with aerosol cleaning products and things like that that should also be positive. So all the demand trends and packaging are moving up.
Christopher Parkinson — Credit Suisse — Analyst
Thank you.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
We are seeing in the second quarter, though, as Thailand is a big food pack region, and we’re seeing that down due to the virus.
Christopher Parkinson — Credit Suisse — Analyst
Very helpful. Thank you.
Operator
The next question comes from Kevin McCarthy of VRP. Please go ahead.
Kevin McCarthy — Vertical Research Partners — Analyst
Yes, good morning. I think you made a comment that two-thirds of your costs were either variable or semi-variable. Would you speak to the outliers in your portfolio in terms of businesses that would be materially above that level or materially below?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah, Kevin, this is Vince. The businesses that have the highest variable cost structure — highest fixed cost structure, excuse me, are businesses where we have leases and employees like our architectural business regardless of the demand up or down in a given day, it’s hard to flex those businesses. The businesses that are strictly OEM have a higher variable cost structure, we are able to reduce our folks at those facilities based on demand. We are able to ratchet down production. There is typically less distribution involved, it’s usually straight from our factory to their factory. So I bucket into the categories of lower fixed cost those OEM businesses in our industrial segment.
Kevin McCarthy — Vertical Research Partners — Analyst
Okay, that’s helpful. And then on slide nine, at the bottom, I think you provide a useful framework for the expected sequence of recovery in your various businesses. Can you speak to the OEM and refinish blocks there, so to speak. Why is it that you would expect OEM to recover quicker than refinish? Is that based on the credit crisis experience or what you’re seeing here today?
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah, I think a lot of it has to do with the fact that the cars aging of the fleet is almost 12 years, and we expect people to continue to want to buy new cars. We also see that happening right now in China. So if you think about China car sales, they’ve incrementally improved each of the last half a dozen weeks. And actually last week, they were almost flat with prior year. And so our experience has been that people still need vehicles. There is a likely positive out of this is that people are going to shun public transportation for some period of time, which means they’re going to want to either buy a new car or they’re going to want to continue to maintain the car they have. So I think those are going to be positive for us coming out of this.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
And one other consideration, Kevin, is because the refinish business is a distribution business, we do know there is inventory in the chain. People were expecting, as Michael alluded to earlier, a normal season. Typically, the distribution channels stock up, go ahead of spring, that stock up did occur. But then, again, we had a rapid decline of demand. So we do know we’ll have to work through inventory in the entire channel as well.
Kevin McCarthy — Vertical Research Partners — Analyst
That’s helpful. Thank you both and be well.
Michael H. McGarry — Chairman and Chief Executive Officer
Thank you, Kevin.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Thank you, Kevin.
Operator
The next question comes from John Roberts of UBS. Please go ahead.
John Roberts — UBS Investment Bank — Analyst
Thanks, and you guys all sound well, so that’s good to hear. In the trade architectural paint or pro applied, you indicated that completion of in-progress construction would provide some help here in the current quarter, is it possible that September quarter will be very depressed as well because once that rolls off, it’ll offset the recovery in some of the maintenance painting that might come back?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Hey John, if you look at the normal commercial projects, they are typically nine to 24 months or even longer — even longer. So we expect those to carry-forward for the most part, certainly through Q3. They haven’t been stopped, they’ll be restarted and carry through Q3 if not in 2021. On the residential side, the homebuilding occurs in weeks instead of months. So we do think after the current slate of homes are — that are in progress or constructed, we’ll see a little bit of a void there. But that’ll be again after probably the summer at a minimum.
John Roberts — UBS Investment Bank — Analyst
Thank you. Do you expect trade paint to be sequentially up in the September quarter, I guess a different way to phrase it?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
To Michael’s comment earlier, the visibility is just not there for us to make those comments on that far out.
John Roberts — UBS Investment Bank — Analyst
Okay. And then in the bad debt reserve, is that concentrated in any area? What kind of assumptions are you making there? Is it more dealers or auto body shops? Or what are you assuming in your bad debt?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah. We went through the mix of customers we have. Globally, we did certainly look at it from a business and size of customer and their liquidity. So it’s really a mix of all of our businesses and our expectations algorithmically against their metrics. Now, I’ll point out, John, in 2008 and 2009, we didn’t see a significant uplift in bad debt in that crisis. We did take this reserve because this crisis affects — it’s just broader and affects a lot of smaller customers differently than ’08, ’09.
John Roberts — UBS Investment Bank — Analyst
Thank you.
Operator
Next question comes from Michael Sison of Wells Fargo. Please go ahead.
Michael Sison — Wells Fargo — Analyst
Hey guys, glad you guys are all safe and sound. In terms of your stores, can you maybe talk about how many of your stores are shutdown and what — maybe what percent and maybe just run through what they’ve changed in terms of their ability to do business during this social distancing shutdown type of environment?
Michael H. McGarry — Chairman and Chief Executive Officer
Yes, so, Mike, you have to go by various regions around the world. So if you look in Italy, all our stores are closed and they’re doing delivery. In France, we have — we had gone through a period of time, the last two weeks of March and I’d say the first two-and-a-half weeks of April where they were all closed. But now we’ve gotten permission to open up a few of them, and we have latent demand as soon as we open a store you can immediately see a pop in sales. So right now we have about, I would say about 40 stores open in France. And when you move over into the UK, they were mostly running all the way through near the end of March. And now we got probably about 40% of the stores are back open again. And again, you see a significant demand pull as soon as you can get a store open. So that helps us. We did not have to close any stores in Denmark, they had a record quarter, we had no store closures in the Benelux. So that was also a very solid performance.
In the US, right now we have about 250 stores closed. But that is really more trying to not only comply with local regulations but also because we moved to a delivery model. It doesn’t really matter whether the store is open or closed where we’ve moved to delivery. So the painters just want to know you get the product at the right place at the right time. So we’ll continue to manage in that kind of environment.
Michael Sison — Wells Fargo — Analyst
Great. And a quick follow-up. I know you won’t feel the raw material impact or lower raw materials for the second half of the year. But can you maybe talk about directionally given where oil is at, what you see in the basket as you head into the second half of the year, is it going to be down double-digits and maybe — maybe talk about each of the paint buckets in terms of the direction?
Michael H. McGarry — Chairman and Chief Executive Officer
Well, I think right now, I think directionally, it’s all we’re going to say right now is it’s down. It will depend upon July 1 type pricing, because solvents are immediately passed through, we’ll start to see some of the resins benefit. But at this point, I think, I would, given that it’s going to be so little and we’ll have another chance to talk again at the end of the second quarter, I think I’d rather defer when we have more visibility into that number.
Michael Sison — Wells Fargo — Analyst
Got it. Thank you.
Operator
The next question is from Bob Koort of Goldman Sachs. Please go ahead.
Robert Koort — Goldman Sachs — Analyst
Thank you very much. I was wondering, if you guys look back at architectural to the financial crisis, I guess it was at least for a period, a shift towards DIY, maybe gaining some share. It sounds like maybe you think that’s going to happen again, and I guess curious what kind of duration or impact you think that might have?
Michael H. McGarry — Chairman and Chief Executive Officer
What we’re seeing right now, Bob, the DIY numbers across our business are up significantly. And people they have free time on their hands. They want to get projects done. They’re out there getting them done. We expect that to continue probably the whole summer. So I would say there’s no likelihood that’s going to stop anytime soon. And I think this has been consistent with — when people — nobody wants to be unemployed, but when they’re unemployed that gives them free time and that has been a positive force. Our DIY in Australia is up, our DIY in Europe is up, our DIY in Mexico is not much of a market but it’s positive and certainly in the US, it’s positive.
Robert Koort — Goldman Sachs — Analyst
And can I ask you on refinish, if we look back to the last financial crisis, you mentioned density is improving, but still not high enough on roads for collision rates. But is there some level of drifting by consumers such that when the collision rates climb, they still don’t actually get their car fixed because they’re trying to save that money or pocket that insurance money, is there going to be any delay in pick up there or did you not see that in the last economic crisis?
Michael H. McGarry — Chairman and Chief Executive Officer
We did see that in the last economic crisis, Bob. It’s probably too early to tell you that right now what that’s going to look like. Nobody is getting in an accident right now. But we’ll be paying close attention to that. It’s easy to tell because when you’re driving down the road, you’ll be able to see one and two panel accidents that aren’t getting repaired, but we’ll be paying a lot of attention to it.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
I think the duration of the last crisis, Bob, was a contributor to that. People weren’t unemployed for a longer period — long periods of time. We’re certainly hopeful, we don’t know but we’re certainly hopeful the duration of this crisis is shorter.
Robert Koort — Goldman Sachs — Analyst
Yeah. It makes sense. Thanks, guys.
Operator
Next question is from Frank Mitsch of Fermium Research. Please go ahead.
Frank Mitsch — Fermium Research — Analyst
Good morning, gentlemen, and kudos on your charity efforts. I appreciate the commentary on the raw materials and the outlook. I just wanted to see the other side of that calculation on the — your ability to raise pricing, you’ve done a really good job over the last couple of years with price increases in each quarter, etc,. Must be a very difficult environment right now. How should we think about that side of the equation?
Michael H. McGarry — Chairman and Chief Executive Officer
Frank, this is Michael. First of all, I hope you like to judge draft, so —
Frank Mitsch — Fermium Research — Analyst
Loved it. Thank you, loved it.
Michael H. McGarry — Chairman and Chief Executive Officer
Okay. So I would tell you that we’re — sorry.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Materials pricing.
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah. When I think about pricing, it’s going to hold in there. The reason why is when I think about the production rates for most of our employee — our customers, they are going to be down. And so they’re not going to have a lot of leg to stand on in regards to the production rates. The second thing is the raw materials from — started going up in fourth quarter 2016 all the way through the first quarter of 2019. And therefore, we haven’t quite captured back all that pricing. And so I think from that standpoint, we’re going to be in good — good shape. So I don’t — I do not anticipate the pricing fallen off. We still have some other price increases, we’re going to be doing later this year. So clearly with the currencies being weak, that we’ll have opportunities in Latin America, we’ll also have it in our refinish business later in the year. So I think from that standpoint, pricing will continue to be a positive for us.
Frank Mitsch — Fermium Research — Analyst
Interesting, very interesting. And if I could — if I could ask a question about the allowance for doubtful accounts, obviously, that’s something that you don’t typically do, this sort of magnitude. Are there specific industries that you’re most concerned about in that regard? How do we think about that? And, well, I guess it’s too early to say if there’s scope for additional charges in the second quarter. But just based on what you’ve done in the first quarter, what are the industries that you’re — that you’re most concerned about there?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah, Frank, we alluded to earlier. We’re most concerned about small business who has less levers of liquidity, and that goes across many of our regions. So we took a more detailed approach with respect to trying to understand those small businesses and their capability to withstand a crisis like this.
Frank Mitsch — Fermium Research — Analyst
All right. So we can exclude auto OEM and aerospace, etc, and focus on some of the smaller customers?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Well, we took some reserve in every one of our businesses and every one of our regions. But if you ask where we were heightened in terms of our concern in small businesses.
Frank Mitsch — Fermium Research — Analyst
Thank you.
Operator
The next question is from P.J. Juvekar of Citi. Please go ahead.
P.J. Juvekar — Citi — Analyst
Yes, hi, good morning. Some of the painting projects from this point you’ve said could be delayed into the fall, they may slip into next year or get cancelled. And how do you think about those three buckets? And given that you slowed down utilization for your plants, what is the inventory level in the channel for the spring? Thank you.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
P.J., just a little hard to hear you there. I think you asked about deferral or cancellation of projects into the spring or fall. And again, we’re getting information from our customers on a real-time basis. We do think as mandates, stay-at-home mandates are lifted, we’ll see a surge of activity, projects that have been started are completed. There’s certainly some pent-up demand as Michael alluded to, we’re seeing in Europe as stores open there. But if you look at the reality is some of these hardest hit markets, especially in the commercial side, we expect to have a prolonged recovery. And in terms of their — size of their business, and also in terms of their balance sheet repair. So those are the ones, the maintenance work in any — certainly any new commercial projects are ones where we expect to be either delayed or postponed or canceled.
P.J. Juvekar — Citi — Analyst
Thank you. And then what about inventory levels? Have you sold paint into the channel for the spring? And did you have to slow down your plant as a result and can you just update us on sort of inventories in the channel? Thanks.
Michael H. McGarry — Chairman and Chief Executive Officer
P.J., I would say the only one that had significant inventory build would have been refinish. They had — they anticipated a spring rebuild of the accidents that they had in the backlog. So now they’re just working off the backlog. I would say that’s the biggest one.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
And as we mentioned in our prepared remarks, our finished goods inventory was elevated, which it normally is at that point in the season. So we’re working that down as we go through Q2 into Q3 as well.
P.J. Juvekar — Citi — Analyst
Okay. I just wanted to clarify something you said about raw materials. You said you will give more comments on second quarter, Michael. But does that — I mean, given that your volumes are down, does it take longer for raw materials to flow through? Is that what you meant, because you want to give guidance on second quarter? Thank you.
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah. We won’t get a lot of benefit in Q2. But when we talk to you again in July after the second quarter earnings are released, we can give more clarity on how it will flow through in Q3. I mean, typically raw materials flow through in that 50 to 60 day time period, but since we’re going to be buying a lot less, we don’t anticipate much benefit in Q2.
P.J. Juvekar — Citi — Analyst
Great. Thank you.
Operator
The next question is from Jeff Zekauskas with J.P. Morgan. Please go ahead.
Jeff Zekauskas — J.P. Morgan — Analyst
Thanks very much. In the 2009 recession, you were really able to move your SG&A expenses down pretty rapidly. But you’re a leaner company than you are now or than you were then. So order of magnitude, is your goal to try to knock your SG&A costs down maybe 15% year-over-year for the next three quarters, or do you have a different goal?
Michael H. McGarry — Chairman and Chief Executive Officer
Yes, Jeff, we’re certainly looking today at all of our discretionary cost items. The one thing that we don’t know is the duration of this crisis. And as I mentioned, I think with the first question, we are seeing staggered startups. So in 2008, 2009 everything was down for an extended period of time and we’ve worked our cost accordingly. Here it’s a little more dynamic. And we’re certainly trying to manage our costs aggressively. As you mentioned, and we mentioned our break-even points are lower. So it’s going be a little more difficult till we understand the duration of the crisis.
Jeff Zekauskas — J.P. Morgan — Analyst
Okay. I guess for my follow-up, can you tell me what were the volumes like in your domestic store network in April?
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah, they’re — if you look at that segment right now, they’re probably down 15% through the first 27 days. I would tell you that it’s a different mix than what we typically see. So a lot of that also has to do with like res repaint, people are not able to get into homes to do that type of work. You’re seeing a lot less maintenance type work because of obviously the hotels aren’t going to be spending any money. So it’s a little early to tell you whether or not all these trends are going to continue. But I certainly think that the likelihood of lower maintenance especially in anything in the hospitality segment is going to continue to be significantly negatively impacted.
Jeff Zekauskas — J.P. Morgan — Analyst
Okay. Great. Thank you very much. Please stay safe.
Michael H. McGarry — Chairman and Chief Executive Officer
Thank you, Jeff.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Thank you, Jeff.
Operator
The next question is from Vincent Andrews of Morgan Stanley. Please go ahead.
Vincent Andrews — Morgan Stanley — Analyst
Thank you, and nice to hear everyone’s voice this morning. If I could just ask you on two specific raw materials, TiO2 and propylene. The TiO2 looks like it fell flat for the second quarter in most regions, despite obviously very challenging development conditions. And propylene is holding up quite well despite the decline in oil prices. Some suggest that’s a function of slower refinery runs and therefore less refinery grade propylene. So just any thoughts on whether you think those dynamics will break down over time as the sort of the lower volume demand works their way into the F&B balance or if these are going to be a little stickier this time around?
Michael H. McGarry — Chairman and Chief Executive Officer
Well, let’s start with TiO2. We’re convinced that this is a supply demand driven market. I’m sure we’re hearing a lot about costs on their side about ore. Frankly, that’s kind of a red herring. So we are seeing lower TiO2 prices for Q2 not as much as it should be, but we’re still working the system there. Demand, obviously, in the second quarter is going to be down considerably on the paint side, which is their largest end-use market. So we’ll be shifting suppliers around to able to make sure we get the lowest TiO2 price. From a propylene standpoint, it’s not just propylene, it’s the downstream derivatives of the resins. And so on that side, that will be long as well. So we’re anticipating that we’ll continue to see some price relief in that area although that won’t be a significant purchase in the second quarter like it normally is.
Vincent Andrews — Morgan Stanley — Analyst
And as a follow-up, Vince, on working capital, impressive that you took 120 basis points of sales out so quickly given the unprecedented nature of what took place late in the quarter. So can you just level set us on sort of how we should expect that to progress through the balance of the year? Have you already fully implemented your plan or is there more to come in the second quarter or just how should we be modeling that?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah, again, the visibility here might slow, but our operations teams deserve a lot of credit. They reacted and are reacting exceptionally quickly to the environment. As Michael mentioned, we’re measuring the start-up of our facilities around customer demand. It’s just too early to predict on what the drawdown will be of our finished goods. We have to see the demand patterns more fully in order to understand the working capital impacts. It’s certainly a high focus for the company as it is at every company.
Vincent Andrews — Morgan Stanley — Analyst
Thanks, guys.
Operator
The next question is from Kevin Hocevar of Northcoast Research. Please go ahead.
Kevin Hocevar — Northcoast Research — Analyst
Hey, good morning, everybody. Glad to hear everybody’s safe. On slide nine, curious on how you select the mix of product line performance to impact your margins here because on slide nine, you show that aerospace and refinish are likely to be the slowest to recover, which I believe are two of your higher margin businesses. So curious if you could comment on the mixed impact to your margins?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah, Kevin, if you look at the segments, obviously, there are several businesses on this slide that we say a higher volume impact that are in our performance segment — performance coating segment, which does have higher margins. So that is a negative mix impact as you alluded to. The businesses we expect to recover quicker have been in the industrial segment, that segment got hit hard in Q1. We do expect again some progression as we get to late Q2 and early Q3 in terms of the margins in that segment. But I think your analysis is accurate.
Kevin Hocevar — Northcoast Research — Analyst
Okay. And then curious on the corporate expense, it looks like you’re guiding at $40 million — or is it $45 million to $50 million in the second quarter, which looks like the first half is tracking up quite a bit versus the first half of last year. I think last year it was $90 million, this year it’s on track for $105 million to $110 million. Why is that up that much? Is that where bad debt expense is showing up? Or — because I think with incentive comp reversals, and I think there’s some stock-based comp in there that would drive that down. So just curious why that’s running higher?
John Bruno — Director, Investor Relations
Hey, Kevin, this is John. So I would remind everybody, it’s slower than what we’ve guided to in January. In the first quarter of last year was a lower historical first quarter. So this first quarter came in more in line to where we are typically in Q1. And I would say Q2 is forecasted to be a little bit lower than a normal Q2. So we do have some initiatives. We’re still funding digitalization, which Michael talked about in his opening remarks is a new program that we’re funding out of corporate. So we have some examples like that, that also impacted.
Kevin Hocevar — Northcoast Research — Analyst
Okay. Thank you very much.
Operator
The next question is from Arun Viswanathan of RBC Capital Markets. Please go ahead.
Arun Viswanathan — RBC Capital Markets — Analyst
Good morning, and thanks for taking the question. Happy to hear everyone is safe and sound for now. I guess, I just wanted to ask about the 30% to 35% volume decline in Q2. Is there a way you could potentially size your business maybe into three buckets, automotive, architectural, and industrial? And what’s the typical lead time that you have in the — in those areas? And maybe automotive you’d have to switch into refinish and OEM, but what’s a typical lead time? And I’m just trying to gauge your confidence level in that 30% to 35%. Would you consider that kind of a conservative estimate? Or could it end up being better or worse than that? And then again, maybe just to help us with by vertical? Thanks.
Michael H. McGarry — Chairman and Chief Executive Officer
Yeah. So that number is our current best estimate. If you think about automotive, we’re just in time delivery business. Now we do have some inventory on hand that we were going to be delivering in late March when they abruptly shut down. So we’ll be asking our auto guys to take that inventory first, so automotive paint has aging requirement to it. So we try to make sure that we give them the freshest stuff.
But otherwise we’re — they’re placed in orders. I always tell people in the automotive, they give us a 60-day outlook, which is probably 80% accurate, a 30-day outlook, which is 90% and then a week or two before, its 100% accurate. So right now, we’re still sitting upwards of 21 days before they’re starting up. So what they have given us a start-up number, we’ve factored that into the estimate that we gave you. We’ve looked at demand. And so we anticipate that they will ramp-up rates throughout the back half of the second quarter, so that’s how we factor that for automotive.
For refinish, we think the orders will be light given the fact that there’s no density, no congestion, no miles driven. And so we’re anticipating that we won’t see significant inventory in the refinish side until the back half of the quarter. We — obviously, commercial transport, light industrial coatings, we’re going to continue to see those.
And then on the architectural side, those orders are placed the day before. So, they don’t give you a lot of notice. You do know when the big projects are coming, so you’re geared up for the big projects. But the day-to-day kind of stuff, they show up and tell you what they need, place their orders by noon, pickup 7 A.M. So we expect that to continue that order pattern, we don’t expect to get a lot of visibility differently than we’re getting now.
Arun Viswanathan — RBC Capital Markets — Analyst
Okay, that’s helpful. Then just on the margin front. When you look at the Q1 margins, they held up relatively well, all things considered. When you consider the cost actions that you’re accelerating, which — how should we think about the decremental margins are in Q2? Is there opportunity for those to be slightly better than what you’ve experienced from the COVID losses in Q1? Thanks.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah. Again, as we mentioned earlier, that’s certainly our target. There’s some things working against that. But we’re certainly targeting to improve versus the $90 million segment earnings decline on the $225 million sales decline that we experienced in Q1.
Arun Viswanathan — RBC Capital Markets — Analyst
Anyway to potentially quantify that or help us figure out how to do that?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Again, only I can tell you, Arun, as I said at the outset of the question-and-answer session, so there’s things working for us and things working against us, we have more time to be planful and have implemented discretionary cost controls that we didn’t have at our benefit in March. But we again are being respectful of those folks being furloughed. And as I mentioned, there’s a stage start-up going on. And we do have some costs that are global in nature that we need now in China and hopefully need them in Europe in the next coming weeks.
Arun Viswanathan — RBC Capital Markets — Analyst
Okay. Great. Thanks a lot. Good luck on the quarter.
Operator
The next question is from Duffy Fischer of Barclays. Please go ahead.
Duffy Fischer — Barclays Capital, Inc. — Analyst
Hey, good morning, folks. Question just around a couple of your end markets and your customers there. You talked about maybe the potential on the debt side for those small contractors. But if you look at auto refinish, if you look at contract or architectural, how do you judge the health of those customers of yours? Were they able to get some of the money from the government? Are you setting up funding plans for them? And if you use 2009 as an example, did you see significant consolidation and kind of customers going away in a reset of that model?
Michael H. McGarry — Chairman and Chief Executive Officer
So from the architectural side, we are not funding our painters. We’re certainly more than happy to work with them. Right now, there still is a fair amount of commercial. There is backlog out there that they’re going to work out. The question is, when does that backlog go away? They also have variable cost structures. So they hire painters during the busy season and then let them go as the season winds down. So they have the opportunity to manage their cost structure from that regard. So we’ll be watching it. We do think that this could lead to more MSO type activities from the body shops. Clearly that’s a benefit for us if that happens, and when that happens. So we’ll be watching out for that. But the small body shops, I would say, they also have somewhat of a variable cost structure as well. But I would anticipate that they would be applying for the PPP money to support them in this regard.
Duffy Fischer — Barclays Capital, Inc. — Analyst
Okay. And then, if we could just focus on the Comex business in Mexico, with the fallen the peso and they seem to be a little bit slower on the COVID response, how would you judge the health of the Mexican business? And then what are the costs down there that are somewhat dollar-based versus the cost structure that’s peso-based down there?
Michael H. McGarry — Chairman and Chief Executive Officer
So from a raw material standpoint, Duffy, about now call it 60% of the raw materials are dollar-based. So hence that’s why we’ll be able to pass-through a price increase down there to offset that here in the near-term. When you think about the rest of the business, our concessionaire network is not owned by us. It’s owned by our partners. And so we don’t have that big fixed cost structure that’s hanging over our heads down there.
What I can tell you right now is that the sellout in April is actually pretty good. We have about 1,200 stores that are operating what we call curtain down. So you can’t physically walk in the store. But only 250 of those 1,200 are actually not delivering. So the vast majority of them are still delivering products. So, that is continuing to progress. And I would tell you, our overall Mexican team is somewhat cautious though because the current government is not as pro-business, as the prior government. And so we think that the back half of the year will be a little bit more challenging. Construction projects that are underway will probably be completed. But there’s not a whole lot of new big stuff being started. And so that does give us a little pause for concern. So we’re going to be watching that very carefully.
Duffy Fischer — Barclays Capital, Inc. — Analyst
Great. Thank you,guys.
Operator
The next question is from Laurence Alexander of Jefferies. Please go ahead.
Laurence Alexander — Jefferies — Analyst
Hi, there are two quick questions. Can you talk to us about incremental margins on the recovery if you expect any significant difference between Europe and the US? And secondly, with the success or the learnings that you’ve had from the shift to the delivery model, how should we think about this longer term? Do those volumes switch back to the stores on the restart or is the goal to grow that? And is the cost to the consumer similar or lower than purchasing through the stores?
Michael H. McGarry — Chairman and Chief Executive Officer
Laurence, I would say that the incremental margins on the way up in Europe and the US will be somewhat similar, they should be on the higher end of the spectrum. So that will be a positive. From the delivery aspect, as you know, we’ve been a proponent of the delivery model for some time now. We’re working with our premier authorized dealer network. We had a good quarter from that standpoint in the first quarter. So we think the delivery model will continue. And right now, once our customers get used to it, I think that trend line will continue. Obviously, we’ve tried to convince the owners of the businesses that when their painters come in our stores, they’re not painting, they’re not getting paid. And so the more that we can keep them out on the job site, the better it is for the owners. And I think they’re going to start to see that become more evident in their business. So I think this is a long-term trend that’s going to continue.
Laurence Alexander — Jefferies — Analyst
Thank you.
Operator
The next question is from Mike Harrison of Seaport Global Securities. Please go ahead.
Michael Harrison — Seaport Global Securities — Analyst
Hi, good morning. The increase in restructuring number to me that implies a structural cut that isn’t including areas like reduced travel and entertainment, furloughs, other discretionary cutbacks that you’re kind of temporarily reducing. So can you just verify that those temporary reductions are not included in that restructuring number and how much could we be talking about in terms of SG&A savings from these furloughs and other temporary cutback?
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Yeah, Mike, the restructuring savings that we cited does not include these other discretionary costs. We haven’t itemized or sized that level. Again, it’s going to be part of the tempering we’re going to try to do on the decremental margins that I alluded to several times.
John Bruno — Director, Investor Relations
Hey, Mike, this is John. Just this is the second time we’ve got an SG&A question. So I just want to remind folks that in the financial assumptions slide, we did provide a range of 28% to 29% for SG&A for Q2. So we did want to give you some help in modeling. So that might be a number you can take a look at.
Michael Harrison — Seaport Global Securities — Analyst
All right. Thanks very much. And then kind of a two part question on aerospace. Number one, you’ve mentioned, I believe the aftermarket business about half of your business in aerospace, you mentioned that planes are flying empty, but a lot of them are still flying. So how much lower is the aftermarket business versus normal? And then the second piece of the question is, does this downturn fundamentally alter the long-term secular positive view that we’ve had on new commercial aircrafts?
Michael H. McGarry — Chairman and Chief Executive Officer
So right now, just to be clear, Mike, 60% of the global fleet is parked. So that is an unprecedented number from that standpoint. Your estimation of the aftermarket is relatively a good number. So you can continue with that kind of number. Right now, we’re not thinking that this is a fundamental shift in the aerospace business. The global trends are going to continue I think. I think the fact that you’re seeing all these people want to get up and get out of their houses reinforces that. We’re seeing travel intra-China continuing to grow every week. So we do not see a fundamental shift.
Now I do think the order book for the big OEMs will be materially lower because they’re going to obviously going to try to figure out what their exact needs are. And right now they have no cash. So they will be looking to cancel some of that. So you have seen a significant cancellation. If you look at the net new orders for Boeing, they were minus 307, if I remember, right. Airbus did have some net new orders. So, the backlog I think will come down. But I think overall, this is still a good industry for us.
Michael Harrison — Seaport Global Securities — Analyst
All right. Thanks very much.
Michael H. McGarry — Chairman and Chief Executive Officer
Thanks, Mike.
Vincent J. Morales — Senior Vice President and Chief Financial Officer
Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
John Bruno — Director, Investor Relations
Thank you. I would like to thank everyone for their time and interest in PPG and please remain safe and healthy. If you have any further questions, please contact our Investor Relations department. This concludes our first quarter earnings call.
Operator
[Operator Closing Remarks]