First quarter 2015 reported net income from continuing operations was $321 million, or $2.33 per diluted share, and adjusted net income from continuing operations was $327 million, or $2.37 per diluted share. First quarter 2014 reported net income from continuing operations was $277 million, or $1.97 per diluted share, with adjusted net income from continuing operations totaling $279 million, or $1.98 per diluted share. Both quarters included portfolio transformation transaction-related costs, which were $6 million, or 4 cents per diluted share, in 2015, and $2 million, or 1 cent per diluted share, in 2014. During the quarter, the adjusted effective tax rate from continuing operations increased to 24.4 percent versus 24 percent in the first quarter 2014, resulting principally from the inclusion of Comex acquisition earnings.
“We continued to deliver strong financial results, including 20 percent adjusted earnings-per-share growth,” said Charles E. Bunch, PPG chairman and chief executive officer. “Contributing to our record performance were the benefits from our recent strategic actions and cash deployment. These included incremental acquisition-related earnings along with a 2 percent reduction in our share count as compared to the prior year. Additionally, our net interest expense in the quarter was nearly 50 percent lower, relating primarily to our late 2014 debt-refinancing actions.
“From an economic perspective, overall global activity was subdued in the quarter, as reflected by our modest sales-volume growth. Additionally, currency translation unfavorably impacted our sales and lowered our pretax earnings by nearly $30 million. However, both of our coatings segments delivered all-time-record first quarter earnings, and the glass segment delivered its highest first quarter earnings in more than 10 years. Our ongoing cost and productivity initiatives, continued PPG volume growth in certain end-use markets and an accelerating company growth rate in emerging regions aided our segment results,” Bunch said.
“Looking ahead, we anticipate stronger global economic growth in the coming quarters, including a resumption of growth in Europe and a return to a higher growth rate in the U.S.,” Bunch said. “We remain well-positioned to leverage this growth into strong earnings contributions, given our lower cost base stemming from our continued cost management actions. We remain focused on aggressively managing our costs and are initiating restructuring actions concentrated on securing the synergies we committed to with our recent acquisitions, along with other global productivity measures in certain businesses and regions.”
PPG announced a business-restructuring program that includes actions necessary to achieve cost synergies related to recent acquisitions. In addition, the program aims to further right-size employee headcount and production capacity in certain businesses and regions based on current product demand and in various global administrative functions. A pretax restructuring charge of $135 million to $140 million will be recorded in PPG's second quarter 2015 financial results, of which about 85 percent represents cash charges. PPG said it expects these restructuring actions will result in full-year pretax savings of $100 million to $105 million by 2017, including 2015 partial-year savings of $15 million to $20 million.
“Lastly, we continue to work on balance-sheet optimization and earnings-accretive cash deployment. Since the beginning of the year, we issued $1.3 billion of euro-denominated long-term debt at an average interest rate of 1.1 percent, completed the previously announced acquisition of automotive specialty materials manufacturer REVOCOAT and continued to repurchase stock,” Bunch concluded.
PPG reported cash and short-term investments totaling approximately $1.2 billion at quarter-end. In the first quarter, the company repurchased $200 million, or about 860,000 shares, of PPG stock. The company has approximately $1.5 billion remaining of its current share repurchase authorization, which was approved in 2014.
First Quarter 2015 Reportable Segment Financial Results
· Performance Coatings segment net sales for the quarter were $2.06 billion, up about 2 percent over the prior-year period. Acquisitions, including Comex and several smaller acquisitions, added about $225 million to net sales, or about 12 percent. Unfavorable currency translation reduced net sales by about $160 million, or about 8 percent. Segment volumes declined slightly. Volume growth continued in aerospace and automotive refinish, reflecting higher end-market demand. Aggregate protective and marine coatings volumes declined, including lower demand in North and South America. Architectural coatings – EMEA (Europe, Middle East and Africa) sales volumes were mixed throughout the region but negative compared with strong prior-year growth, as prior-year volumes grew 6 percent reflecting an early start to the regional paint season due to favorable weather conditions. Architectural coatings volumes in the U.S. and Canada were mixed, as PPG company-owned same-store and independent dealer sales grew by mid-single-digit percentages but were offset by lower volumes stemming from several new-product pipeline fills at major customers in the prior-year quarter. Segment income of $262 million was up $14 million, or 6 percent, driven by acquisition-related earnings partly offset by the volume impact. Unfavorable currency translation reduced segment income by about $15 million.
· Industrial Coatings segment net sales for the quarter were $1.34 billion, down 2 percent year-over-year. Strong segment sales volume growth of 5 percent was offset by unfavorable currency translation of approximately $90 million, or 7 percent. Automotive original equipment manufacturer (OEM) coatings delivered higher sales volumes in all regions, growing in aggregate by high-single-digit percentages, which exceeded the global industry growth rate of about 2 percent. Volumes in the industrial coatings and specialty coatings and materials businesses were up slightly, but they varied by region and end-use market. Packaging coatings sales volumes grew by mid-single-digit percentages. Total segment income for the quarter was $244 million, up $13 million, or 6 percent, year-over-year. Higher volumes and manufacturing cost improvements were partly offset by $10 million of unfavorable foreign currency translation.
· Glass segment net sales were $267 million for the quarter, up $1 million year-over-year. Improved pricing in both businesses was offset by unfavorable currency translation that impacted sales by about $10 million. Flat glass sales volumes grew modestly, and results were aided by an improved value-added product mix. Lower fiber glass volumes in the U.S. were partly offset by European growth. Segment income was $30 million, up $26 million versus the prior year due to the favorable product mix and lower manufacturing costs including the benefits from PPG’s flat glass manufacturing facility sale in 2014 and the absence of prior-year major repair and maintenance costs. These benefits were partly offset by higher pension expense and about $5 million of unfavorable foreign currency translation.