PPG Reports 4Q, Full-year 2018 Financial Results

PPG reported fourth-quarter 2018 net sales of approximately $3.6 billion, down one percent versus the prior year. Net sales in constant currencies grew about 2 percent year-over-year aided by higher selling prices of more than two percent. Sales volumes were down one percent versus the prior year in aggregate. Unfavorable foreign currency translation impacted net sales by approximately three percent, or about $110 million, and acquisition-related sales, net of divestitures, added less than one percent to sales growth.
 
Fourth quarter 2018 reported net income from continuing operations was $256 million, or $1.07 per diluted share. Adjusted net income from continuing operations was $271 million, or $1.15 per diluted share. Fourth quarter 2017 reported net income from continuing operations was $148 million, or 58 cents per diluted share. Adjusted net income from continuing operations was $305 million, or $1.19 per diluted share. Reconciliations of the reported to adjusted figures are included below. For the fourth quarter of 2018, the effective tax rate was about 24 percent and the adjusted effective tax rate was about 26 percent.
 
“In the fourth quarter, we delivered net sales growth in local currencies of about 2 percent, led by higher selling prices marking seven consecutive quarters of improved pricing,” said Michael H. McGarry, PPG chairman and CEO. “These price increases, along with our ongoing cost management efforts, remain focused on offsetting continued input cost inflation, as we made further progress on recovering our operating margins toward prior-year levels. Also impacting our sales were softening global economic growth and demand declines in certain end-use markets. 
 
“For the full year, we delivered adjusted earnings per diluted share growth despite significant and persistent raw material and logistics cost inflation, which impacted the entire coatings industry and rose sequentially throughout much of the year. In addition to achieving higher pricing, we aggressively managed our cost structure delivering about $80 million of full-year cost savings, reaching the top-end of our target. Strategically, during the past year, we announced six acquisitions, including recent announcements of SEM, Whitford and Hemmelrath. 
 
“Our cash flow from operations remained strong, totaling about $1.5 billion for the year, which is consistent with 2017. We also continued our legacy of returning cash to shareholders, with $2.2 billion returned in 2018 through share repurchases and dividends,” McGarry continued.
 
“As we look ahead, while we remain confident we are well-positioned strategically and financially, we enter 2019 with more global economic uncertainty. The carryover impact from the first-half 2018 cost inflation, significantly unfavorable year-over-year foreign currency translation and modestly lower sales volumes will impact our performance in the first half of 2019. As a result, we currently expect first quarter earnings per diluted share to be in the range of $1.18 to $1.23. We are focused on delivering increased financial results and will be providing certain detailed information regarding our full year 2019 forecast and financial targets in a separate communication,” McGarry concluded.
 
The company reported full-year cash from operations of about $1.5 billion. For the year, the company completed more than $1.7 billion of share repurchases and paid about $450 million in dividends. Net capital expenditures totaled about $410 million. The company ended the year with approximately $5 billion of gross debt and about $1 billion of cash and short-term investments. The company had $1.8 billion remaining on its current share repurchase authorizations at year-end 2018.
 
Fourth Quarter 2018 Reportable Segment Financial Results
Performance Coatings segment fourth quarter net sales were $2.1 billion, up $16 million, or nearly one percent, versus the prior year. Sales in constant currencies increased by more than three percent driven by higher selling prices. Acquisition-related sales were approximately $15 million, including the acquisition of automotive refinish products manufacturer SEM. Segment volumes were flat including the previously announced customer assortment changes in the national retail do-it-yourself channel which reduced segment sales by approximately two percent, or about $40 million year-over-year. Unfavorable foreign currency translation lowered net sales by about $55 million, or nearly three percent. 
 
Aerospace coatings net sales volumes grew by over 10 percent as a result of strong industry demand and continued strong customer demand in each major region for PPG’s technology advantaged products. Organic sales for automotive refinish coatings were flat as unfavorable impacts from customer inventory destocking in the U.S. were offset by growth in other regions. Aggregate protective and marine coatings sales volumes increased by a high-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, company-owned architectural stores grew same-store sales by a low-single-digit percentage. Aggregate volumes in the DIY retail accounts and independent dealer channel declined significantly versus the prior year, driven by the customer assortment changes. Latin American architectural coatings organic sales volumes grew by a mid-single-digit percentage, led by Mexico. Architectural coatings – EMEA organic sales volumes increased by a mid-single-digit percentage with contributions from both selling price increases and volume growth. 
 
Segment income for the fourth quarter was $261 million, $2 million higher than the prior year fourth quarter despite unfavorable foreign currency translation impacts of about $5 million. Segment income was aided by improving selling prices and cost management, offset by raw material and logistics cost inflation and the impact of lower sales volumes.
 
Industrial Coatings segment fourth quarter net sales were about $1.5 billion, down $53 million, or more than three percent, versus the prior-year period. Higher selling prices of about two percent offset lower sales volumes of about two percent. Unfavorable foreign currency translation lowered sales by about $55 million, or more than three percent, versus the prior year.
 
Automotive OEM coatings sales volumes decreased by about five percent year-over-year, consistent with lower global automotive industry production rates and driven by decreased automotive industry demand in both China and Europe. Industrial coatings and specialty coatings and materials sales volumes increased by a low-single-digit percentage versus the prior year, as solid sales volume growth was achieved in the U.S. and Canada offset by softer demand in Asia-Pacific. Packaging coatings sales volumes also increased a low-single-digit percentage year-over-year, adding to strong growth in the prior year.
 
Segment income for the fourth quarter was $187 million, down $27 million, or about 13 percent, year-over-year, including unfavorable foreign currency translation impacts of about $5 million. Segment income was also impacted by continuing raw material and logistics cost inflation and the sales impact of softening global automotive OEM industry production rates, which were partially offset by improving selling prices and aggressive cost management.
 
Full-Year 2018 Financial Results
Full-year 2018 reported net sales from continuing operations were approximately $15.4 billion, up about four percent, versus the prior year, including net favorable foreign currency translation of less than one percent, or approximately $105 million. Organic sales growth of about three percent versus the prior year was supplemented by acquisition-related sales of nearly one percent.
 
The company’s 2018 full-year reported net income from continuing operations was $1.3 billion, or $5.40 per diluted share, versus $1.4 billion, or $5.31 per diluted share, in 2017. Full-year 2018 adjusted earnings per diluted share from continuing operations was $5.92 per diluted share compared to $5.86 per diluted share in 2017. The effective tax rate from continuing operations was about 21 percent for 2018, versus 31 percent for 2017, and the adjusted effective tax rate from continuing operations was about 22 percent for 2018, versus about 24 percent for 2017. The company’s global effective tax rate is expected to be in the range of 23-to-25 percent for the year 2019.