04.20.17
PPG has reported first quarter 2017 net sales of about $3.6 billion, up 1 percent versus the prior year. Net sales in local currencies grew nearly 3 percent year-over-year, aided by sales volume growth of 2 percent. The net impact from business portfolio actions contributed less than 1 percent to net sales, as acquisition-related net sales modestly exceeded divested net sales stemming from the sale of the European fiber glass business in October 2016. Selling prices were flat, an improvement versus prior sequential quarters. Unfavorable foreign currency translation impacted net sales by nearly 2 percent, or about $65 million.
First quarter 2017 net income from continuing operations was $334 million, or $1.29 per diluted share. First quarter 2017 adjusted net income from continuing operations was $351 million, or $1.35 per diluted share. Adjusted net income excludes an after-tax pension settlement charge of $14 million, or 5 cents per diluted share, and after-tax transaction-related costs of $3 million, or 1 cent per diluted share. The effective tax rate for the quarter was 24.3 percent, and the adjusted effective tax rate for the quarter was 25.0 percent.
First quarter 2016 net income from continuing operations was $337 million, or $1.25 per diluted share. First quarter 2016 adjusted net income from continuing operations was $341 million, or $1.27 per diluted share. Adjusted net income excluded after-tax charges totaling $4 million, or 2 cents per diluted share, for transaction-related costs and an asset write-down charge. The effective tax rate for the quarter was 24.6 percent, and the adjusted effective tax rate for the quarter was 24.7 percent.
“We continued to deliver higher year-over-year adjusted earnings per diluted share, increasing by more than 6 percent in the first quarter. This growth was despite moderate but uneven global market demand and the unfavorable impact from foreign currency translation,” said Michael McGarry, PPG chairman and chief executive officer. “Our earnings-per-share growth rate improved versus the fourth quarter 2016, benefiting from our ongoing cash deployment, sales volume growth and continued cost discipline, but negatively impacted by increasing raw material costs, which we partially offset with our initial pricing actions,” McGarry said.
“In aggregate, sales volumes grew by 2 percent year-over-year, including broad-based growth across the majority of our European businesses. Volumes were flat in the U.S. and Canada, reflecting a continuation of uneven end-market demand, with declines in automotive industry production offset by improvements in other end-use markets. Sales volumes continued to expand solidly in emerging regions, led by growth in Latin America and Asia,” McGarry said.
“From a business perspective, sales volumes grew more than 5 percent in our Industrial Coatings segment, more than doubling global industrial production growth rates. Each business in the segment posted solid mid-single-digit percentage growth versus the prior year. Sales volumes were in line with the prior year in our Performance Coatings segment, where significant weakness in global marine coatings continued to offset growth in other businesses,” McGarry said.
“Looking ahead, we expect economic growth to remain modest, particularly in developed regions. In the U.S. and Canada, aggregate customer demand has yet to match recent economic optimism. We anticipate continued measured growth in Europe across most of our businesses. Growth rates in emerging regions are expected to remain moderate, driven by increased consumer demand in Asia and broad-based expansion across Latin America, including in Brazil, where we see improvements after a likely bottoming,” McGarry said.
“We are focused on earnings-accretive opportunities to deploy our strong balance sheet for the benefit of our shareholders,” McGarry continued. “We recently made a very attractive and highly compelling offer to acquire AkzoNobel. This offer was rejected, and to date, the Boards of AkzoNobel have declined PPG’s multiple invitations to discuss the proposal. We remain willing to engage with AkzoNobel and continue to believe strongly that a combination of the two companies is in the best interest of both companies’ stakeholders. Separately, our pipeline for bolt-on acquisitions remains active in most end-markets and geographies. We will remain focused on maximizing long-term shareholder value,” McGarry concluded.
PPG reported today that cash and short-term investments totaled approximately $1.4 billion on March 31, 2017, up about $350 million versus the prior-year period. During the quarter, the company repurchased about $165 million, or approximately 1.6 million shares, of PPG stock, and average diluted shares outstanding were reduced by about 4 percent versus the prior year. The company has approximately $1.7 billion remaining under its current share-repurchase authorization. PPG reiterated its commitment to deploy at least $2.5 billion to $3.5 billion of cash on acquisitions and share repurchases in years 2017 and 2018 combined.
First Quarter 2017 Reportable Segment Financial Results
· Performance Coatings segment first quarter net sales were approximately $2.02 billion, down $22 million, or about 1 percent, versus the prior-year period. Sales in local currencies increased by more than 1 percent versus the prior year, primarily due to higher selling prices along with acquisition-related sales of approximately $10 million. Sales volumes were consistent with the prior year, including a modest positive impact from the Easter holiday shift between quarters, affecting some businesses and regions year-over-year. Unfavorable foreign currency translation reduced net sales by approximately $45 million, or about 2 percent.
Organic sales expanded by a low- to mid-single-digit percentage in automotive refinish, with higher end-use customer demand in each region. Aerospace sales volumes were consistent with the prior year, reflecting a continuation of modest industry demand growth and customer inventory management. Led by increased demand in Western Europe, sales volumes improved in architectural coatings – EMEA (Europe, Middle East, and Africa), advancing by a low-single-digit percentage and building on the prior-year sales volume increase. Architectural coatings – Americas and Asia Pacific sales volumes declined by less than 1 percent. A mid-single-digit percentage increase in U.S. and Canada company-owned stores was offset by lower demand in the independent dealer network, with volumes mixed in national retail accounts including comparisons to prior-year new product inventory pipeline fills. Architectural coatings sales volumes improved year-over-year in Latin America and Asia Pacific. Protective and marine coatings sales volumes decreased by low-double-digit percentage versus the prior year, as increases in protective coatings were countered by significant weakness in the marine end-use market, particularly in the Asia Pacific region.
Segment income for the first quarter was $285 million, up $6 million, or about 2 percent, year-over-year, including unfavorable foreign currency translation of about $10 million, primarily due to the Mexican peso, British pound, and euro. Segment income benefited from initial selling-price increases and continued overhead and manufacturing cost savings, including the initial benefits from recent business-restructuring actions. Improvements to segment income were partially offset by the unfavorable impact of increasing raw material costs.
· Industrial Coatings segment first quarter net sales were about $1.47 billion, up $97 million, or 7 percent, versus the prior year. Sales volumes increased by a solid mid-single-digit percentage, and acquisition-related sales added approximately $60 million, or about 4 percent, versus the prior year. Pricing was negative by about 1 percent year-over-year, and initial pricing actions are underway to address rising raw material costs. Unfavorable foreign currency translation of more than 1 percent reduced net sales by about $20 million.
Automotive original equipment manufacturer (OEM) coatings sales volumes increased by a mid-single-digit percentage year-over-year, exceeding global industry growth rates. Industrial coatings and specialty coatings and materials sales volumes increased by a mid-single-digit percentage versus the prior year, outpacing global industrial production growth rates for the fifth consecutive quarter, as sales volumes improved year-over-year across a broad range of end-use markets. Packaging coatings increased sales volumes by a mid-single-digit percentage year-over-year, building on strong sales volume growth in the prior-year period, led by continued industry conversions to PPG’s interior can coatings technologies.
Segment income for the quarter was $273 million, up $8 million, or 3 percent, year-over-year. Segment income increased due to higher sales volumes and lower manufacturing costs, including the initial benefits from business-restructuring actions. Acquisition-related income contributed to segment income growth, but at an expected margin that was below the Industrial Coatings segment average margin levels. Lower aggregate selling prices, increasing raw material costs and higher transitory global transportation and logistics costs required to meet elevated customer demand levels in Asia partially offset segment income increases. Unfavorable foreign currency translation reduced segment income by $5 million.
· Glass segment first quarter net sales were $83 million, down $50 million, or about 38 percent, versus the prior-year period, primarily due to the 2016 divestiture of the European fiber glass business. Sales volumes in the North American fiber glass business were down a low-single-digit percentage, mainly attributable to lower customer demand for wind-energy-related products and partially offset by an increase in oil and gas end-market demand. Segment income for the quarter was $9 million, down $5 million versus the prior year due to the absence of income from the divested European fiber glass business and Asian joint ventures. Income improved in the North American fiber glass business year-over-year due to significant cost-structure improvements.
Financial results of the divested flat glass business are presented as discontinued operations. Historical financial results of the divested fiber glass businesses are included in the Glass segment.
First quarter 2017 net income from continuing operations was $334 million, or $1.29 per diluted share. First quarter 2017 adjusted net income from continuing operations was $351 million, or $1.35 per diluted share. Adjusted net income excludes an after-tax pension settlement charge of $14 million, or 5 cents per diluted share, and after-tax transaction-related costs of $3 million, or 1 cent per diluted share. The effective tax rate for the quarter was 24.3 percent, and the adjusted effective tax rate for the quarter was 25.0 percent.
First quarter 2016 net income from continuing operations was $337 million, or $1.25 per diluted share. First quarter 2016 adjusted net income from continuing operations was $341 million, or $1.27 per diluted share. Adjusted net income excluded after-tax charges totaling $4 million, or 2 cents per diluted share, for transaction-related costs and an asset write-down charge. The effective tax rate for the quarter was 24.6 percent, and the adjusted effective tax rate for the quarter was 24.7 percent.
“We continued to deliver higher year-over-year adjusted earnings per diluted share, increasing by more than 6 percent in the first quarter. This growth was despite moderate but uneven global market demand and the unfavorable impact from foreign currency translation,” said Michael McGarry, PPG chairman and chief executive officer. “Our earnings-per-share growth rate improved versus the fourth quarter 2016, benefiting from our ongoing cash deployment, sales volume growth and continued cost discipline, but negatively impacted by increasing raw material costs, which we partially offset with our initial pricing actions,” McGarry said.
“In aggregate, sales volumes grew by 2 percent year-over-year, including broad-based growth across the majority of our European businesses. Volumes were flat in the U.S. and Canada, reflecting a continuation of uneven end-market demand, with declines in automotive industry production offset by improvements in other end-use markets. Sales volumes continued to expand solidly in emerging regions, led by growth in Latin America and Asia,” McGarry said.
“From a business perspective, sales volumes grew more than 5 percent in our Industrial Coatings segment, more than doubling global industrial production growth rates. Each business in the segment posted solid mid-single-digit percentage growth versus the prior year. Sales volumes were in line with the prior year in our Performance Coatings segment, where significant weakness in global marine coatings continued to offset growth in other businesses,” McGarry said.
“Looking ahead, we expect economic growth to remain modest, particularly in developed regions. In the U.S. and Canada, aggregate customer demand has yet to match recent economic optimism. We anticipate continued measured growth in Europe across most of our businesses. Growth rates in emerging regions are expected to remain moderate, driven by increased consumer demand in Asia and broad-based expansion across Latin America, including in Brazil, where we see improvements after a likely bottoming,” McGarry said.
“We are focused on earnings-accretive opportunities to deploy our strong balance sheet for the benefit of our shareholders,” McGarry continued. “We recently made a very attractive and highly compelling offer to acquire AkzoNobel. This offer was rejected, and to date, the Boards of AkzoNobel have declined PPG’s multiple invitations to discuss the proposal. We remain willing to engage with AkzoNobel and continue to believe strongly that a combination of the two companies is in the best interest of both companies’ stakeholders. Separately, our pipeline for bolt-on acquisitions remains active in most end-markets and geographies. We will remain focused on maximizing long-term shareholder value,” McGarry concluded.
PPG reported today that cash and short-term investments totaled approximately $1.4 billion on March 31, 2017, up about $350 million versus the prior-year period. During the quarter, the company repurchased about $165 million, or approximately 1.6 million shares, of PPG stock, and average diluted shares outstanding were reduced by about 4 percent versus the prior year. The company has approximately $1.7 billion remaining under its current share-repurchase authorization. PPG reiterated its commitment to deploy at least $2.5 billion to $3.5 billion of cash on acquisitions and share repurchases in years 2017 and 2018 combined.
First Quarter 2017 Reportable Segment Financial Results
· Performance Coatings segment first quarter net sales were approximately $2.02 billion, down $22 million, or about 1 percent, versus the prior-year period. Sales in local currencies increased by more than 1 percent versus the prior year, primarily due to higher selling prices along with acquisition-related sales of approximately $10 million. Sales volumes were consistent with the prior year, including a modest positive impact from the Easter holiday shift between quarters, affecting some businesses and regions year-over-year. Unfavorable foreign currency translation reduced net sales by approximately $45 million, or about 2 percent.
Organic sales expanded by a low- to mid-single-digit percentage in automotive refinish, with higher end-use customer demand in each region. Aerospace sales volumes were consistent with the prior year, reflecting a continuation of modest industry demand growth and customer inventory management. Led by increased demand in Western Europe, sales volumes improved in architectural coatings – EMEA (Europe, Middle East, and Africa), advancing by a low-single-digit percentage and building on the prior-year sales volume increase. Architectural coatings – Americas and Asia Pacific sales volumes declined by less than 1 percent. A mid-single-digit percentage increase in U.S. and Canada company-owned stores was offset by lower demand in the independent dealer network, with volumes mixed in national retail accounts including comparisons to prior-year new product inventory pipeline fills. Architectural coatings sales volumes improved year-over-year in Latin America and Asia Pacific. Protective and marine coatings sales volumes decreased by low-double-digit percentage versus the prior year, as increases in protective coatings were countered by significant weakness in the marine end-use market, particularly in the Asia Pacific region.
Segment income for the first quarter was $285 million, up $6 million, or about 2 percent, year-over-year, including unfavorable foreign currency translation of about $10 million, primarily due to the Mexican peso, British pound, and euro. Segment income benefited from initial selling-price increases and continued overhead and manufacturing cost savings, including the initial benefits from recent business-restructuring actions. Improvements to segment income were partially offset by the unfavorable impact of increasing raw material costs.
· Industrial Coatings segment first quarter net sales were about $1.47 billion, up $97 million, or 7 percent, versus the prior year. Sales volumes increased by a solid mid-single-digit percentage, and acquisition-related sales added approximately $60 million, or about 4 percent, versus the prior year. Pricing was negative by about 1 percent year-over-year, and initial pricing actions are underway to address rising raw material costs. Unfavorable foreign currency translation of more than 1 percent reduced net sales by about $20 million.
Automotive original equipment manufacturer (OEM) coatings sales volumes increased by a mid-single-digit percentage year-over-year, exceeding global industry growth rates. Industrial coatings and specialty coatings and materials sales volumes increased by a mid-single-digit percentage versus the prior year, outpacing global industrial production growth rates for the fifth consecutive quarter, as sales volumes improved year-over-year across a broad range of end-use markets. Packaging coatings increased sales volumes by a mid-single-digit percentage year-over-year, building on strong sales volume growth in the prior-year period, led by continued industry conversions to PPG’s interior can coatings technologies.
Segment income for the quarter was $273 million, up $8 million, or 3 percent, year-over-year. Segment income increased due to higher sales volumes and lower manufacturing costs, including the initial benefits from business-restructuring actions. Acquisition-related income contributed to segment income growth, but at an expected margin that was below the Industrial Coatings segment average margin levels. Lower aggregate selling prices, increasing raw material costs and higher transitory global transportation and logistics costs required to meet elevated customer demand levels in Asia partially offset segment income increases. Unfavorable foreign currency translation reduced segment income by $5 million.
· Glass segment first quarter net sales were $83 million, down $50 million, or about 38 percent, versus the prior-year period, primarily due to the 2016 divestiture of the European fiber glass business. Sales volumes in the North American fiber glass business were down a low-single-digit percentage, mainly attributable to lower customer demand for wind-energy-related products and partially offset by an increase in oil and gas end-market demand. Segment income for the quarter was $9 million, down $5 million versus the prior year due to the absence of income from the divested European fiber glass business and Asian joint ventures. Income improved in the North American fiber glass business year-over-year due to significant cost-structure improvements.
Financial results of the divested flat glass business are presented as discontinued operations. Historical financial results of the divested fiber glass businesses are included in the Glass segment.
