Sales volumes were flat versus the prior year in aggregate, with volume growth of about two percent offset by lower U.S. architectural coatings volumes due to previously announced customer assortment changes. Unfavorable foreign currency translation impacted net sales by more than two percent, or $83 million.
Third quarter 2018 net income from continuing operations was $368 million, or $1.51 per diluted share. Third quarter 2018 adjusted net income from continuing operations was $353 million, or $1.45 per diluted share. The reported and adjusted effective tax rates for the quarter were approximately 17.5 and 20.5 percent, respectively. Adjusted net income and the effective tax rate exclude certain items that are detailed in the reconciliation of the reported to adjusted figures table below.
Third quarter 2017 reported and adjusted net income from continuing operations was $393 million, or $1.52 per diluted share. The reported and adjusted effective tax rate for the quarter was about 24 percent.
“We delivered strong net sales growth in local currencies of more than 3 percent,” said Michael McGarry, PPG chairman and CEO. “This growth was driven by higher selling prices and continued strong volume growth from several PPG business units, including aerospace and general industrial coatings. Our selling prices have improved for six consecutive quarters, and we have additional pricing actions underway. In addition, we continue to take aggressive steps to recover our operating margins, including acceleration of restructuring actions and disciplined cost management.
“As we look ahead, we expect normal business seasonality in the fourth quarter and anticipate overall global economic growth will remain positive,” McGarry continued. “We experienced increasing industrial production volatility and inconsistency in emerging region growth rates as the third quarter progressed, and we expect that to continue. As a result of these economic trends, we expect generally consistent quarterly PPG sales trends sequentially in the fourth quarter. Our fourth quarter earnings per diluted share guidance remain in the range of $1.03 to $1.13.
“Finally, we continued to deploy cash with nearly $1.3 billion of share repurchases during the first nine months of 2018, including approximately $250 million in the third quarter. Our acquisition pipeline remains active. We expect deployment on acquisitions and share repurchases in the fourth quarter to total approximately $1 billion, which will increase our balance sheet leverage while still providing financial flexibility heading into 2019. We remain focused on executing our strategy, which we believe will drive further shareholder value creation,” McGarry concluded.
Third Quarter 2018 Reportable Segment Financial Results
Performance Coatings segment third quarter net sales were approximately $2.3 billion, flat versus the prior year. Sales in constant currencies increased by more than two percent driven by higher selling prices, partly offset by slightly lower sales volumes. Unfavorable foreign currency translation lowered net sales by about $45 million, or about two percent.
Aerospace coatings sales volumes grew a low-teen-digit percentage due to continued strong customer demand for PPG products in each major region. Automotive refinish coatings organic sales declined by a mid-single-digit percentage stemming from a change in customer order patterns, as several U.S. and European customers have high inventory levels due to lower end-use market demand. Aggregate protective and marine coatings sales volumes increased by a mid-single-digit percentage, with positive contributions from both end-use markets.
Architectural coatings – Americas and Asia-Pacific organic sales declined a low-single-digit percentage year-over-year, with differences by channel and region. In the U.S. and Canada, same-store sales in company-owned architectural stores grew by a high-single-digit percentage. Aggregate volumes in the national do-it-yourself (DIY) retail accounts and independent dealer channels declined significantly versus the prior year, driven by the unfavorable impact from the previously announced customer assortment changes in the U.S. architectural coatings business. Latin American architectural coatings sales volumes grew by a mid-single-digit percentage led by Mexico. Architectural coatings – EMEA sales volumes declined a low-single-digit percentage, in line with regional demand.
Segment income for the third quarter was $331 million, nine percent lower than the third quarter of 2017, including unfavorable foreign currency translation impact of about $5 million. Segment income decreased due to the impact of lower sales volumes and higher raw material and logistics costs, partially offset by improving selling prices and restructuring-related cost savings.
Industrial Coatings segment third quarter net sales were about $1.5 billion, up $42 million, or nearly three percent, versus the prior year. Year-over-year sales volumes increased by nearly two percent, and selling prices increased by more than one percent. Acquisition-related sales were approximately $30 million, an increase of about two percent compared to the prior year. Unfavorable foreign currency translation decreased sales by about $40 million, or about three percent.
Automotive original equipment manufacturer (OEM) coatings sales volumes were flat, slightly better than overall global automotive OEM industry builds. General industrial coatings sales volumes posted solid growth with above-market growth in Europe and Latin America. Packaging coatings sales volumes grew by a mid-single-digit percentage year-over-year, with above-industry growth rates stemming from continued customer adoption of new PPG technologies.
Segment income for the third quarter was $169 million, down $56 million, or 25 percent, year-over-year, including unfavorable foreign currency translation impact of about $5 million. Segment income was lower due to significant raw material and logistics cost inflation, which was partly offset by higher selling prices and the impact of increased sales volumes.
Third quarter corporate expenses decreased from the prior year due to lower incentive compensation expense and lower post-employment benefit costs. The full year adjusted effective tax rate on continuing operations is expected to be in the range of 23 to 24 percent.