01.19.18
PPG reported fourth quarter 2017 net sales of approximately $3.7 billion, up nearly 8 percent versus the prior year. Sales volumes increased by three percent year-over-year and selling prices improved sequentially for the third consecutive quarter, adding less than one percent to sales growth. Favorable foreign currency translation improved net sales by more than three percent, or about $115 million, and acquisitions-related sales, net of divestitures, added less than one percent to sales growth.
Fourth quarter 2017 reported net income from continuing operations was $184 million, or 72 cents per diluted share, including an unfavorable impact of 5 cents per diluted share stemming from the natural disasters that occurred in the third quarter. Adjusted net income from continuing operations was $304 million, or $1.19 per diluted share. Adjusted net income excludes net after-tax charges totaling $120 million, or 47 cents per diluted share. These net after-tax charges include: $97 million net charge related to the new U.S. Tax Cuts and Jobs Act legislation; $24 million for pension settlement charges; and $7 million for asset write-downs, partially offset by an $8 million gain from the sale of a non-operating asset. The net tax charge reflects the company’s current best estimate of the new legislation’s impact. As new information becomes available, including issuance of interpretations by regulatory bodies, the company may update this estimate. For the fourth quarter 2017, the effective tax rate was 49.7 percent and the adjusted effective tax rate was 24.3 percent. For the full year, the adjusted effective tax rate was 24.4 percent. With the enactment of the U.S. Tax Cuts and Jobs Act legislation, the company’s global effective tax rate is expected to be in the range of 23-to-24 percent for the year 2018.
Fourth quarter 2016 reported net income from continuing operations was $91 million, or 34 cents per diluted share. Adjusted net income from continuing operations was $306 million, or $1.16 per diluted share. Adjusted net income excludes net after-tax charges totaling $215 million, or 82 cents per diluted share. These net after-tax charges include: $144 million for business restructuring; $51 million for increases to legacy environmental reserves; $23 million for higher tax expense related to asbestos settlement funding; and $5 million for a premium on the early retirement of debt, partially offset by an $8 million net gain on the disposals of ownership interests in business affiliates. For the fourth quarter 2016, the effective tax rate was 31.2 percent and the adjusted effective tax rate was 24.4 percent.
“In the fourth quarter, we delivered solid and balanced sales growth in each major region, and both reporting segments achieved at least 2 percent sales volume growth,” said Michael H. McGarry, PPG chairman and CEO “Additionally, our aggregate selling prices improved for the third consecutive quarter as we made continued progress on our margin recovery efforts, despite higher than anticipated raw material inflation in the quarter driven by ongoing supply-related issues, including production curtailments from additional environmental enforcement in China.
“Our Performance Coatings segment delivered its highest sales volume growth of the year, growing more than 2 percent aided by continued above-market performance in automotive refinish coatings, strengthening aerospace growth and solid mid-single-digit percentage volume growth in our U.S. company-owned architectural coatings stores. Industrial Coatings maintained a mid-single-digit percentage sales volume growth rate, once again well outpacing global industrial production, led by our general industrial and packaging coatings businesses,” McGarry said.
“For the full year, we delivered adjusted earnings per diluted share growth despite repeated disruptions to the coatings industry supply chain that resulted in significant coatings raw material inflation. We continued our legacy of aggressively managing our cost structure and delivered $50 million of full year cost savings from our 2016 restructuring program, achieving the top-end of our target. Strategically, during 2017 we completed our multi-year portfolio transformation with the sale of the U.S. fiber glass business, our last remaining non-core business, and continued our earnings-accretive focused cash deployment.
“Our cash flow from operations was excellent, totaling over $1.5 billion for the year, including the benefit from improved operating working capital ratios. We also continued our heritage of returning cash to shareholders, with more than $1.2 billion returned in 2017 via share repurchases and dividends. We remain proud that PPG has paid annual dividends for 118 consecutive years, and increased per-share payouts for 46 consecutive years, including a 13% per-share increase in July,” McGarry continued.
“Looking ahead, we are well positioned to benefit from broadening and more synchronized global economic growth due to our geographic reach, excellent product portfolio, and advanced customer technologies, McGarry said. We expect minimal abatement in the first half of the year to the high level of raw material inflation that the coatings industry is experiencing. We will continue to work with our customers to address the inflationary environment and expect to realize additional selling price increases in 2018. Finally, we continue to have strong financial flexibility and are committed to deploy a minimum of $2.4 billion of cash in 2018 on acquisitions and share repurchases as part of our previously communicated target to deploy $3.5 billion in 2017 and 2018 combined,” McGarry concluded.
The company reported year-end 2017 cash and short-term investments of approximately $1.5 billion. Also, PPG had $3.6 billion remaining on its current share repurchase authorizations at year-end 2017, including a $2.5 billion authorization approved by PPG’s Board of Directors in December.
Fourth Quarter 2017 Reportable Segment Financial Results
Performance Coatings segment fourth quarter net sales were $2.1 billion, up $144 million, or more than seven percent, versus the prior year. Net sales benefited from higher selling prices across most businesses and regions, and segment sales volume growth of more than 2 percent. Favorable foreign currency translation increased net sales by about $67 million, or over three percent.
Automotive refinish coatings organic sales improved by a mid-single-digit percentage driven by market outperformance in the U.S. and Europe, and strong emerging region demand. Aerospace coatings sales volumes growth accelerated with a mid-single-digit percentage gain over the prior year period, aided by improving demand in the U.S. and Asia. Architectural coatings – Americas and Asia Pacific sales volumes advanced a low single-digit percentage year-over-year, with differences by channel and region. In the U.S. and Canada, company-owned architectural same store sales grew by a solid mid-single-digit percentage, while aggregate sales volumes in national retail (DIY) accounts and independent dealer networks were flat to the prior year period. Latin American architectural coatings sales volumes were flat versus the prior year, as growing end-use market demand was offset by lingering unfavorable impacts of the Mexican earthquakes. Architectural coatings – EMEA sales volumes were consistent with the prior year, an improvement versus the third quarter, as results remained mixed by country. Aggregate protective and marine coatings sales volumes were flat year-over-year, with protective coatings sales growth offsetting moderating marine coatings contraction.
Segment income for the fourth quarter was $260 million, up $21 million, or about 9 percent, year-over-year, including favorable foreign currency translation of $6 million. Segment income improved year-over-year aided by the impact of higher sales volumes, overhead and manufacturing cost management and improving selling prices, partially offset by significant raw material inflation.
Industrial Coatings segment fourth quarter net sales were about $1.6 billion, up $121 million, or more than eight percent, versus the prior-year period. Sales volumes increased by more than four percent and favorable foreign currency translation added nearly $46 million, or about three percent, versus the prior year. Selling prices were modestly lower year-over-year, but improved sequentially versus the third quarter. Acquisition-related sales added $27 million in sales, or about two percent year-over-year.
Automotive original equipment manufacturer (OEM) coatings sales volumes increased by a low-single-digit percentage year-over-year, consistent with global automotive industry production rates. Aggregate industrial coatings and specialty coatings and materials sales volumes increased by a mid-single-digit percentage versus the prior year and outpaced global industrial production growth rates for the eighth consecutive quarter, as the company achieved higher sales volumes in each major region and in many end-use markets. Packaging coatings sales volumes accelerated to a high-single-digit percentage year-over-year growth rate, with above industry growth rates in most regions stemming from customer adoption of new PPG technologies.
Segment income for the fourth quarter was $212 million, down $24 million, or about 10 percent, year-over-year. Segment income was lower as aggressive cost improvements and strong sales volume growth did not fully offset significant raw material inflation and modestly lower selling price. Progress was made on selling price initiatives in the fourth quarter sequentially, with further progress expected in the first half of 2018. Favorable foreign currency translation aided segment income by $6 million.
Full-Year 2017 Financial Results
Full-year 2017 reported net sales from continuing operations were approximately $14.8 billion, up more than three percent, versus the prior year, including favorable foreign currency translation of less than 1 percent, or approximately $55 million. Organic sales growth of 1.5 percent versus the prior year was supplemented by acquisition-related sales growth of more than one percent.
The company’s 2017 full-year reported net income from continuing operations was $1.4 billion, or $5.46 per diluted share. Full-year 2017 adjusted earnings per diluted share from continuing operations was $5.87 per diluted share, representing an increase of nearly 4 percent year-over-year. Adjusted net income excludes net after-tax charges totaling $105 million, or $0.41 per diluted share. These net after-tax charges include: $97 million net charge related to the new U.S. Tax Cuts and Jobs Act legislation; $38 million for pension settlement charges; $7 million for asset write-downs; and $6 million for transaction-related costs, partially offset by a $24 million gain from the sale of the Mexican Plaka wallboard business; an $11 million benefit from a legal settlement, and an $8 million gain from the sale of a non-operating asset. In 2017, foreign currency translation unfavorably impacted pre-tax income by $7 million. The effective tax rate from continuing operations was 28.8 percent for 2017 and the adjusted effective tax rate from continuing operations was 24.4 percent for 2017.
The company’s 2016 full-year reported net income from continuing operations was $547 million, or $2.05 per diluted share. Full-year 2016 adjusted earnings per diluted share from continuing operations was $5.67 per diluted share. Adjusted net income excludes net after-tax charges totaling $959 million, or $3.62 per diluted share. These net after-tax charges include: $616 million for pension settlement charges; $151 million for a net tax charge related to asbestos settlement funding; $144 million for business restructuring; $51 million charge for increases to legacy environmental reserves; $17 million for asset write-downs; $5 million for transaction-related costs; and $5 million for a premium on the early retirement of debt, partially offset by a $30 million net gain on the disposals of ownership interests in business affiliates. The effective tax rate from continuing operations was 27.6 percent for 2016 and the adjusted effective tax rate from continuing operations was 24.6 percent for 2016.
Fourth quarter 2017 reported net income from continuing operations was $184 million, or 72 cents per diluted share, including an unfavorable impact of 5 cents per diluted share stemming from the natural disasters that occurred in the third quarter. Adjusted net income from continuing operations was $304 million, or $1.19 per diluted share. Adjusted net income excludes net after-tax charges totaling $120 million, or 47 cents per diluted share. These net after-tax charges include: $97 million net charge related to the new U.S. Tax Cuts and Jobs Act legislation; $24 million for pension settlement charges; and $7 million for asset write-downs, partially offset by an $8 million gain from the sale of a non-operating asset. The net tax charge reflects the company’s current best estimate of the new legislation’s impact. As new information becomes available, including issuance of interpretations by regulatory bodies, the company may update this estimate. For the fourth quarter 2017, the effective tax rate was 49.7 percent and the adjusted effective tax rate was 24.3 percent. For the full year, the adjusted effective tax rate was 24.4 percent. With the enactment of the U.S. Tax Cuts and Jobs Act legislation, the company’s global effective tax rate is expected to be in the range of 23-to-24 percent for the year 2018.
Fourth quarter 2016 reported net income from continuing operations was $91 million, or 34 cents per diluted share. Adjusted net income from continuing operations was $306 million, or $1.16 per diluted share. Adjusted net income excludes net after-tax charges totaling $215 million, or 82 cents per diluted share. These net after-tax charges include: $144 million for business restructuring; $51 million for increases to legacy environmental reserves; $23 million for higher tax expense related to asbestos settlement funding; and $5 million for a premium on the early retirement of debt, partially offset by an $8 million net gain on the disposals of ownership interests in business affiliates. For the fourth quarter 2016, the effective tax rate was 31.2 percent and the adjusted effective tax rate was 24.4 percent.
“In the fourth quarter, we delivered solid and balanced sales growth in each major region, and both reporting segments achieved at least 2 percent sales volume growth,” said Michael H. McGarry, PPG chairman and CEO “Additionally, our aggregate selling prices improved for the third consecutive quarter as we made continued progress on our margin recovery efforts, despite higher than anticipated raw material inflation in the quarter driven by ongoing supply-related issues, including production curtailments from additional environmental enforcement in China.
“Our Performance Coatings segment delivered its highest sales volume growth of the year, growing more than 2 percent aided by continued above-market performance in automotive refinish coatings, strengthening aerospace growth and solid mid-single-digit percentage volume growth in our U.S. company-owned architectural coatings stores. Industrial Coatings maintained a mid-single-digit percentage sales volume growth rate, once again well outpacing global industrial production, led by our general industrial and packaging coatings businesses,” McGarry said.
“For the full year, we delivered adjusted earnings per diluted share growth despite repeated disruptions to the coatings industry supply chain that resulted in significant coatings raw material inflation. We continued our legacy of aggressively managing our cost structure and delivered $50 million of full year cost savings from our 2016 restructuring program, achieving the top-end of our target. Strategically, during 2017 we completed our multi-year portfolio transformation with the sale of the U.S. fiber glass business, our last remaining non-core business, and continued our earnings-accretive focused cash deployment.
“Our cash flow from operations was excellent, totaling over $1.5 billion for the year, including the benefit from improved operating working capital ratios. We also continued our heritage of returning cash to shareholders, with more than $1.2 billion returned in 2017 via share repurchases and dividends. We remain proud that PPG has paid annual dividends for 118 consecutive years, and increased per-share payouts for 46 consecutive years, including a 13% per-share increase in July,” McGarry continued.
“Looking ahead, we are well positioned to benefit from broadening and more synchronized global economic growth due to our geographic reach, excellent product portfolio, and advanced customer technologies, McGarry said. We expect minimal abatement in the first half of the year to the high level of raw material inflation that the coatings industry is experiencing. We will continue to work with our customers to address the inflationary environment and expect to realize additional selling price increases in 2018. Finally, we continue to have strong financial flexibility and are committed to deploy a minimum of $2.4 billion of cash in 2018 on acquisitions and share repurchases as part of our previously communicated target to deploy $3.5 billion in 2017 and 2018 combined,” McGarry concluded.
The company reported year-end 2017 cash and short-term investments of approximately $1.5 billion. Also, PPG had $3.6 billion remaining on its current share repurchase authorizations at year-end 2017, including a $2.5 billion authorization approved by PPG’s Board of Directors in December.
Fourth Quarter 2017 Reportable Segment Financial Results
Performance Coatings segment fourth quarter net sales were $2.1 billion, up $144 million, or more than seven percent, versus the prior year. Net sales benefited from higher selling prices across most businesses and regions, and segment sales volume growth of more than 2 percent. Favorable foreign currency translation increased net sales by about $67 million, or over three percent.
Automotive refinish coatings organic sales improved by a mid-single-digit percentage driven by market outperformance in the U.S. and Europe, and strong emerging region demand. Aerospace coatings sales volumes growth accelerated with a mid-single-digit percentage gain over the prior year period, aided by improving demand in the U.S. and Asia. Architectural coatings – Americas and Asia Pacific sales volumes advanced a low single-digit percentage year-over-year, with differences by channel and region. In the U.S. and Canada, company-owned architectural same store sales grew by a solid mid-single-digit percentage, while aggregate sales volumes in national retail (DIY) accounts and independent dealer networks were flat to the prior year period. Latin American architectural coatings sales volumes were flat versus the prior year, as growing end-use market demand was offset by lingering unfavorable impacts of the Mexican earthquakes. Architectural coatings – EMEA sales volumes were consistent with the prior year, an improvement versus the third quarter, as results remained mixed by country. Aggregate protective and marine coatings sales volumes were flat year-over-year, with protective coatings sales growth offsetting moderating marine coatings contraction.
Segment income for the fourth quarter was $260 million, up $21 million, or about 9 percent, year-over-year, including favorable foreign currency translation of $6 million. Segment income improved year-over-year aided by the impact of higher sales volumes, overhead and manufacturing cost management and improving selling prices, partially offset by significant raw material inflation.
Industrial Coatings segment fourth quarter net sales were about $1.6 billion, up $121 million, or more than eight percent, versus the prior-year period. Sales volumes increased by more than four percent and favorable foreign currency translation added nearly $46 million, or about three percent, versus the prior year. Selling prices were modestly lower year-over-year, but improved sequentially versus the third quarter. Acquisition-related sales added $27 million in sales, or about two percent year-over-year.
Automotive original equipment manufacturer (OEM) coatings sales volumes increased by a low-single-digit percentage year-over-year, consistent with global automotive industry production rates. Aggregate industrial coatings and specialty coatings and materials sales volumes increased by a mid-single-digit percentage versus the prior year and outpaced global industrial production growth rates for the eighth consecutive quarter, as the company achieved higher sales volumes in each major region and in many end-use markets. Packaging coatings sales volumes accelerated to a high-single-digit percentage year-over-year growth rate, with above industry growth rates in most regions stemming from customer adoption of new PPG technologies.
Segment income for the fourth quarter was $212 million, down $24 million, or about 10 percent, year-over-year. Segment income was lower as aggressive cost improvements and strong sales volume growth did not fully offset significant raw material inflation and modestly lower selling price. Progress was made on selling price initiatives in the fourth quarter sequentially, with further progress expected in the first half of 2018. Favorable foreign currency translation aided segment income by $6 million.
Full-Year 2017 Financial Results
Full-year 2017 reported net sales from continuing operations were approximately $14.8 billion, up more than three percent, versus the prior year, including favorable foreign currency translation of less than 1 percent, or approximately $55 million. Organic sales growth of 1.5 percent versus the prior year was supplemented by acquisition-related sales growth of more than one percent.
The company’s 2017 full-year reported net income from continuing operations was $1.4 billion, or $5.46 per diluted share. Full-year 2017 adjusted earnings per diluted share from continuing operations was $5.87 per diluted share, representing an increase of nearly 4 percent year-over-year. Adjusted net income excludes net after-tax charges totaling $105 million, or $0.41 per diluted share. These net after-tax charges include: $97 million net charge related to the new U.S. Tax Cuts and Jobs Act legislation; $38 million for pension settlement charges; $7 million for asset write-downs; and $6 million for transaction-related costs, partially offset by a $24 million gain from the sale of the Mexican Plaka wallboard business; an $11 million benefit from a legal settlement, and an $8 million gain from the sale of a non-operating asset. In 2017, foreign currency translation unfavorably impacted pre-tax income by $7 million. The effective tax rate from continuing operations was 28.8 percent for 2017 and the adjusted effective tax rate from continuing operations was 24.4 percent for 2017.
The company’s 2016 full-year reported net income from continuing operations was $547 million, or $2.05 per diluted share. Full-year 2016 adjusted earnings per diluted share from continuing operations was $5.67 per diluted share. Adjusted net income excludes net after-tax charges totaling $959 million, or $3.62 per diluted share. These net after-tax charges include: $616 million for pension settlement charges; $151 million for a net tax charge related to asbestos settlement funding; $144 million for business restructuring; $51 million charge for increases to legacy environmental reserves; $17 million for asset write-downs; $5 million for transaction-related costs; and $5 million for a premium on the early retirement of debt, partially offset by a $30 million net gain on the disposals of ownership interests in business affiliates. The effective tax rate from continuing operations was 27.6 percent for 2016 and the adjusted effective tax rate from continuing operations was 24.6 percent for 2016.
