Second quarter 2015 reported net income from continuing operations was $337 million, or $1.23 per diluted share, and adjusted net income from continuing operations was $458 million, or $1.67 per diluted share. Net income from continuing operations for the second quarter 2015 includes an after-tax business restructuring charge of $106 million, or 39 cents per diluted share, and portfolio transformation transaction-related costs of $15 million, or 5 cents per diluted share. Second quarter 2014 reported net income from continuing operations was $393 million, or $1.40 per diluted share, and adjusted net income from continuing operations was $398 million, or $1.42 per diluted share. Net income from continuing operations for the second quarter 2014 included after-tax portfolio transformation transaction-related costs of $2 million, or 1 cent per diluted share, and pension settlement costs of $3 million, or 1 cent per diluted share.
During the second quarter 2015, the adjusted effective tax rate from continuing operations increased to 24.5 percent versus 24.1 percent in the second quarter 2014, resulting principally from the inclusion of income from the Comex acquisition.
“We delivered all-time-record adjusted earnings per share, up 18 percent, supported by second quarter earnings records in each of our coatings segments and expanded year-over-year earnings in our glass segment,” said Charles E. Bunch, PPG chairman and chief executive officer. “We achieved these records despite the significant impact of unfavorable foreign currency translation, and the records demonstrate the strength of our transformed business portfolio, our strong operational focus and the benefits from our continuing cash deployment.
“Sales volumes grew 1 percent year-over-year, similar to the first quarter, reflecting modest global economic growth. Regionally, in comparison with last quarter, our growth rates improved in Europe and the U.S., moderated in Asia and remained unfavorable in South America,” Bunch said.
“We achieved our strongest organic sales growth in our automotive OEM (original equipment manufacturer), packaging and automotive refinish coatings businesses. This sales growth was supplemented by acquisitions, primarily our Comex acquisition, which continued to deliver excellent performance with year-over-year organic sales growth of high-single-digit percentages,” Bunch added.
“Looking ahead, we anticipate global economic growth to continue but remain uneven,” Bunch said. “We will continue our heritage of aggressive cost management, which includes execution of the restructuring actions we announced in April. Despite modest economic growth, we anticipate increased benefits from a lower cost structure and higher earnings leverage on incremental volume growth. Also, based on current foreign exchange rates and the seasonality of our businesses, we expect negative foreign currency translation impacts to remain sizable but to moderate in the second half of the year.
“Lastly, we remain committed to and on track with our previously announced earnings-accretive cash deployment targets. Year-to-date, we have closed or announced business acquisitions with an aggregate purchase price of about $400 million, and we have repurchased $350 million in PPG stock,” Bunch concluded.
In April, the company announced a business restructuring program that includes actions necessary to adjust employee levels and production capacity in certain businesses and regions and to achieve cost synergies related to recent acquisitions. Second quarter 2015 financial results include a business restructuring charge totaling $140 million on a pretax basis, or $106 million after-tax. The company 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.
At the end of the second quarter, PPG reported that cash and short-term investments totaled approximately $1.2 billion. During the quarter, the company repurchased $150 million, or about 1.3 million shares (on a post-stock-split basis), of PPG stock. Year-to-date, the company has repurchased about $350 million of PPG stock and has approximately $1.35 billion remaining of its current share-repurchase authorization approved in 2014. Previously, the company announced a cash deployment target of $1.5 billion to $2.5 billion focused on earnings-accretive acquisitions and share repurchases for combined calendar years 2015 and 2016.
Second Quarter 2015 Reportable Segment Financial Results
· Performance Coatings segment net sales for the quarter were $2.41 billion, up about 3 percent year-over-year. Acquisition-related sales, including Comex and several smaller acquisitions, added about $235 million to net sales, or about 10 percent. Unfavorable foreign currency translation reduced net sales by about $200 million, or about 9 percent. Segment sales volumes grew 1 percent year-over-year. Organic sales growth continued in the aerospace and automotive refinish coatings businesses, reflecting continued end-use-market adoption of leading PPG technologies and growing demand. Architectural coatings volumes in the U.S. and Canada grew by low-single-digit percentages, with growth in the company-owned stores and national retail (do-it-yourself) channels partly offset by modestly lower sales in the independent dealer channel. Architectural coatings – EMEA (Europe, Middle East and Africa) sales volumes were flat versus the prior-year period and varied by country, although aggregate year-over-year growth rates improved in comparison to the first quarter 2015. Protective and marine coatings volumes also improved, led by North American gains, which included initial Comex acquisition-related sales synergies. Segment income was $411 million, up $38 million, or 10 percent, year-over-year, driven primarily by acquisition-related income and improved operating performance in all businesses. Unfavorable foreign currency translation reduced segment income by about $25 million.
· Industrial Coatings segment net sales for the quarter were $1.41 billion, down 3 percent year-over-year. Segment sales volumes grew more than 2 percent, and acquisition-related sales, primarily from REVOCOAT, added about 3 percent, offset by unfavorable foreign currency translation that reduced net sales by approximately $110 million. The automotive OEM coatings business delivered higher sales volumes in all regions, growing in aggregate by mid-single-digit percentages, which exceeded the global industry growth rate of about 1 percent for the quarter. Volumes in the industrial coatings and specialty coatings and materials businesses declined about 2 percent, with wide disparity across the various general industrial end-use markets supplied globally. Global industrial demand was weak early in the quarter but improved as the quarter progressed. Packaging coatings sales volumes increased by high-single-digit percentages, with strong growth in all regions driven by customer adoption of new PPG technologies. Total segment income for the quarter was $260 million, up $3 million, or 1 percent, year-over-year. Segment income benefited from acquisition-related gains and manufacturing cost improvements, which were partly offset by approximately $15 million of unfavorable foreign currency translation.
· Glass segment net sales were $279 million for the quarter, down $10 million, or 3 percent, year-over-year. Improved pricing in both businesses was offset by unfavorable foreign currency translation that impacted sales by about $10 million. PPG’s sale of a flat glass production facility in 2014 resulted in lower flat glass volumes year-over-year, but it improved the business’s value-added product mix. Fiber glass volumes were consistent with the prior-year quarter. Segment income was $37 million, up $26 million year-over-year primarily due to the favorable flat glass product mix and lower manufacturing costs stemming from the facility sale, partly offset by higher year-over-year pension expense and a modest unfavorable foreign currency translation impact.