First quarter 2016 reported net income was $347 million, or $1.29 per diluted share. First quarter 2016 adjusted net income was $351 million, or $1.31 per diluted share. Adjusted net income excludes after-tax charges totaling $4 million, or 2 cents per diluted share, for transaction-related costs and a non-recurring charge. The adjusted effective tax rate for the quarter was 25.0 percent.
First quarter 2015 reported net income and earnings per diluted share from continuing operations were $321 million and $1.16, respectively. Adjusted net income from continuing operations was $327 million, or $1.18 per diluted share, including an after-tax charge for transaction-related costs of $6 million, or 2 cents per diluted share. The first quarter 2015 adjusted effective tax rate was 24.4 percent.
“We delivered record first quarter adjusted earnings per diluted share, which represented an 11 percent year-over-year increase, marking our 13th consecutive quarter with a double-digit percentage increase,” said Michael H. McGarry, PPG president and chief executive officer. “Our record first quarter results benefited from the strong earnings leverage we achieved on sales volume gains along with acquisition-related income and continued cost discipline. We realized this improvement despite ongoing, but moderating, unfavorable foreign currency translation.
“Sales volumes grew one percent year-over-year, reflecting a continuation of modest global demand trends. Our growth accelerated and broadened in Europe, where volumes have improved for five consecutive quarters. U.S. and Canada sales volumes were flat, as we continued to experience variations by end-use market and country. Year-over-year growth in emerging regions remained positive, despite strong prior-year growth in China and Mexico, and reflected uneven end-use market demand,” McGarry said.
“Sales volume increases were comparable in both of our coatings segments, led by the packaging, automotive refinish and architectural coatings – EMEA businesses. Sales volumes declined in our Glass segment primarily due to reduced production capacity related to a scheduled facility outage. Also, the six acquisitions we completed during 2015 contributed to the improved financial results for our two coatings segments,” McGarry said.
“Looking ahead, we expect economic growth to remain measured globally. We anticipate further expansion of the European economic recovery, resulting in higher demand that will enable us to continue to capitalize on our ongoing actions to reduce our cost base in that region. Regional demand in the U.S. and Canada is expected to improve incrementally year-over-year across several end-use markets. Growth rates in emerging regions are expected to remain mixed, with higher consumer spending supporting increased Asian demand and PPG-specific above-market performance in Mexico, tempered by sustained economic weakness in South America,” McGarry said.
“We are accelerating our efforts to develop and commercialize new customer-driven technologies, and we have enhanced our consumer branding strategies. Both of these important initiatives are focused on driving higher organic growth. We are maintaining our strong cost focus, including finalizing the remaining actions of our previously announced restructuring program. Further, the impact of unfavorable foreign currency translation on our sales and income has moderated based on recent exchange rates. Finally, we have a strong cash position and balance sheet, which we intend to continue deploying on earnings-accretive and shareholder-focused actions,” McGarry concluded.
PPG reported today that cash and short-term investments totaled approximately $1.0 billion at the end of the first quarter 2016. During the quarter, the company repurchased $150 million, or about 1.5 million shares, of PPG stock, and average diluted shares outstanding were reduced by about 2 percent versus the prior year. The company has approximately $770 million remaining under its current share repurchase authorization. PPG reiterated its commitment to deploy $2.0 billion to $2.5 billion of cash, in years 2015 and 2016 combined, on acquisitions and share repurchases.
First Quarter 2016 Reportable Segment Financial Results
· Performance Coatings segment first quarter net sales were $2.04 billion, down $16 million, or less than one percent, versus the prior-year period. Sales in local currencies were up more than 3 percent year-over-year, primarily due to acquisition-related sales of about $25 million, or approximately one percent, and higher sales volumes of approximately one percent. Unfavorable foreign currency translation impacted net sales by about 4 percent, or about $85 million. Organic sales expansion continued in automotive refinish coatings, reflecting higher end-use customer demand, particularly in the U.S. and Asia. Sales volume growth accelerated in architectural coatings – EMEA (Europe, Middle East, and Africa), advancing by a low single-digit percentage, as growth rates increased in several Western European countries. Architectural coatings – Americas and Asia Pacific organic sales were up modestly, as increases in Mexico and the U.S. were partially offset by lower demand in certain Canadian markets and persistent weakness in South America. Protective and marine coatings sales volumes were consistent with the prior year, as increases in protective coatings were countered by weakness in the marine end-use market. Aerospace sales volumes declined by a low single-digit percentage, primarily due to lower commercial demand stemming from a continuation of customer inventory management. Segment income for the first quarter was $279 million, up $17 million, or more than 6 percent, year-over-year. A continued cost-management focus, including increased benefits from business restructuring, and acquisition-related income were key drivers in segment income improvement, and they more than offset approximately $15 million of incremental growth-related spending at major national accounts in architectural coatings U.S. and Canada. These costs, related to new product launches and other growth initiatives, were consistent with previously communicated expectations and are not expected to recur in future quarters. Foreign currency translation negatively impacted segment income by about $10 million.
· Industrial Coatings segment first quarter net sales were $1.37 billion, up $32 million, or about 2 percent, versus the prior-year period. Sales in local currencies were up more than 6 percent due to acquisition-related sales of approximately $85 million, or about 6 percent, and sales volume growth of more than one percent. Unfavorable foreign currency translation impacted net sales by almost 4 percent, or about $50 million. Automotive original equipment manufacturer (OEM) coatings sales volumes were in line with the prior year, reflecting global automotive industry production that advanced slightly year-over-year, and in comparison to robust prior-year growth that included double-digit percentage gains in Asia. Industrial coatings and specialty coatings and materials delivered modest year-over-year sales volume growth, an improvement versus recent quarters, led by expansion in Europe and certain end-use market improvements in the U.S. and Canada. Packaging coatings continued to deliver above-industry growth rates, as sales volumes increased by a mid-to-high single-digit percentage in each region, driven primarily by new-technology-related customer conversions. Segment income for the quarter was $265 million, up $21 million, or about 9 percent, year-over-year. This income improvement was due to lower costs, which included manufacturing cost efficiencies and increasing benefits from business restructuring, along with acquisition-related income. Foreign currency translation negatively impacted segment income by approximately $5 million.
· Glass segment net sales were $261 million for the first quarter, down $6 million, or 2 percent, versus the prior-year period. The decrease in sales was due to lower sales volumes, unfavorable foreign currency translation, and lower sales stemming from the sale of a flat glass manufacturing facility, partially offset by improved selling prices. Flat glass industry demand remained solid, but PPG sales volumes declined primarily due to a scheduled facility outage. Fiber glass sales volumes were down modestly, as European growth was offset by lower U.S. demand. Segment income of $28 million was down $2 million versus the prior year, primarily due to $8 million of repair and facility outage expenses, lower sales volumes and lower equity earnings from Asian joint ventures, partially offset by improved selling prices and strong cost management.