Net sales for the third quarter 2018 are expected to be approximately $3.8 billion. Third quarter 2017 net sales were $3.8 billion and reported and adjusted earnings per diluted share from continuing operations were $1.52. The adjusted tax rate for the third quarter 2018 is expected to be in the range of 20 to 21 percent.
“In the third quarter, we continued to experience significant raw material and elevating logistics cost inflation, including the effects from higher epoxy resin and increasing oil prices,” said Michael McGarry, PPG chairman and CEO. “These inflationary impacts increased during the quarter and, as a result, we experienced the highest level of cost inflation since the cycle began two years ago.
“Also, during the quarter, we saw overall demand in China soften, and we experienced weaker automotive refinish sales as several of our U.S. and European customers are carrying high inventory levels due to lower end-use market demand,” McGarry added. “Finally, the impact from weakening foreign currencies, primarily in emerging regions, has resulted in a year-over-year decrease in income of about $15 million. This lower demand, coupled with the currency effects, was impactful to our year-over-year earnings and is expected to continue for the balance of the year.
“We are disappointed with the third quarter earnings results. We continue to work proactively with our customers on higher selling prices to reflect the value of the products we sell and recover margins which have been negatively impacted by the raw material inflationary environment in all of our businesses,” he continued. “We will continue to aggressively manage our costs including accelerating restructuring activities wherever possible.”
Commenting more broadly on business trends for the third quarter, McGarry said, “We expect sales volume growth of about two percent, excluding the unfavorable impact from the previously announced customer assortment changes in the U.S. architectural coatings business. In addition, we expect higher selling prices sequentially versus the second quarter.
“We are anticipating continued raw material cost inflation in the fourth quarter, but at a more modest year-over-year rate given the inflation spike that occurred in the fourth quarter of 2017. Improving our segment operating margins remains a priority, and we expect margins to be comparable versus the fourth quarter 2017 in aggregate. We currently expect fourth quarter earnings per diluted share to be in the range of $1.03 to $1.13, with the wide range primarily due to finalizing our full year tax rate. We remain committed to earnings-accretive cash deployment and expect to deploy approximately $1 billion on either acquisitions or share repurchases during the fourth quarter,” McGarry concluded.
PPG will announce its third quarter 2018 financial results in detail on Thursday, Oct. 18 and conduct a teleconference at 2:00 p.m. Eastern Time.