PPG Reports 2023 Q1 Financial Increases

SPRAY FOAM NEWS – April 24, 2023 – Global coatings supplier PPG (Pittsburgh) reported record first quarter net sales of about $4.4 billion, a 2% increase from the year prior, in a financial results press release issued on Thursday (April 20).

Organic sales growth also grew by about 5% versus the prior year, led by higher selling prices.

First Quarter Performance

Net sales were reportedly roughly $4.38 million, an increase of 2% compared to 2022. This was largely attributed to higher selling prices, which increased by 8%. However, sales volumes were down by approximately 3%, year-over-year.

Foreign currency translation impacted net sales unfavorably as well, decreasing by 2%. The winding down of Russia operations also decreased sales by about 1%, the company said.

For the first quarter, reported net income from continuing operations was $264 million, or $1.11 per diluted share, up exponentially from 2022’s first-quarter figure of $18 million, or $0.08 per diluted share.

“As we communicated earlier this month, the pace of our operating margin recovery accelerated during the quarter, which drove a 33% year-over-year increase in adjusted EPS. Our improving results are despite macroeconomic conditions that remain challenging and reflect the strengths of our diverse business portfolio and progress we are making on restoring margins in line with our historical profile,” commented Tim Knavish, PPG President and Chief Executive Officer.

“While the global demand environment generally remained consistent with our prior expectations, several businesses outperformed our original forecast and their respective markets. These include the aerospace coatings business and our Latin America region, each delivering record sales in the first quarter. In addition, our automotive original equipment manufacturer (OEM) coatings business benefited from solid global production growth and remains well positioned. Finally, our latest customer win in the U.S. architectural business provided a higher load-in benefit than originally projected.

“Our strong earnings growth was across most business units and was aided by higher incremental margins that were driven by higher selling prices, improving manufacturing efficiencies and overall cost discipline. These factors also resulted in record first quarter operating earnings in our Europe, Middle East and Africa (EMEA) region.”

The company had cash and short-term investments totaling approximately $1.5 billion at the end of the quarter and net debt of $5.8 billion, which is about $300 million lower compared to the prior-year first quarter. Inventories reportedly rose modestly on a sequential basis ahead of historically higher seasonal sales levels.

Performance Coatings

First-quarter sales for PPG’s Performance Coatings segment totaled about $2.63 billion, up approximately $11 million, or about 2%, compared to 2022. The net sales increase was reportedly a result of higher selling prices in all businesses offsetting lower sales volumes, the impact of divestitures, the wind down of business in Russia and unfavorable foreign currency translation.

PPG’s Architectural Coatings segment was reported to grow by a high single-digit percentage aided by new business wins and higher selling prices, which more than offset the effect of weakening regional construction markets.

However, due to customer order patterns in Europe and the U.S., automotive refinish coatings organic sales were flat compared to the first quarter 2022, with order backlogs remaining in the U.S. The company expects refinish sales volumes to be close to 2019 pre-pandemic levels in the second quarter.

Aerospace coatings sales volumes had a high-teen-percentage year-over-year sales volume growth and organic sales in the protective and marine coatings business improved by a mid-single-digit percentage, primarily due to strong demand in the U.S. and Latin America.

Segment income was higher than the prior year by $100 million, or 13.7%, mainly due to higher selling prices focused on margin recovery and partially offset by lower sales volumes.

Industrial Coatings

Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.75 billion, up 1% from 2022. The growth reflected selling price increases across all businesses, partially offset by lower sales volumes, and the wind down of business in Russia.

Automotive OEM coatings organic sales were “sharply” higher, with contributions from higher sales volumes and global selling prices. Industry build growth was reportedly highest in Europe, where the company notes it is well positioned with advantaged technologies and where regional growth is forecast to remain robust in 2023.

Industrial coatings organic sales were down a low single-digit percentage as selling price realization was more than offset by lower sales volumes due to softer global industrial production. Additionally, packaging coatings delivered low single-digit percentage organic sales growth led by higher selling prices, which were offset by lower sales volumes in most regions.

Segment income was $240 million, up $100 million, or approximately 71%, year-over-year. This was reportedly due mainly to higher selling prices focused on margin recovery, partially offset by lower sales volumes.

Moving Forward

According to the press release, PPG anticipates that second quarter aggregate sales volumes flat with equal potential for slight improvement or decrease of a low single-digit percentage year over year. Corporate expenses are expected to be about $75 million, higher than the prior year primarily due to increased pension costs. Net interest expenses are expected to be between $35 million and $40 million.

The company reports that it is basing its projections on current global economic activity and in consideration of the economic uncertainty associated with the impacts of geopolitical issues in Europe and higher interest rates in most developed countries.

“Looking ahead, we anticipate the macro environment will generally remain consistent with the first quarter, with continued stabilization of economic activity (at lower absolute levels) in Europe and modestly improving demand in China. In the U.S., we expect sequential slowing in economic activity in certain end-use markets, particularly those that are construction-related,” said Knavish.

“Supply chain disruptions are abating, and we are already experiencing and expect further increases in commodity raw material availability. We remain highly focused on partnering with our customers and delivering superior service and products with a focus on enhancing their productivity and sustainability.

“Finally, along with additional organic growth, we are executing and delivering on our previously announced restructuring actions and acquisition-related synergies, which collectively will drive additional margin recovery momentum and related operating cash flow.”

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