10.17.19
PPG reported third quarter 2019 net sales of approximately $3.8 billion, comparable with the prior year. Net sales in constant currencies were about 2% higher versus the previous year, driven by higher selling prices of 2.6%, and acquisition-related sales, net of divestitures, of more than 2%. Aggregate sales volumes were down nearly 3% versus the prior year. Unfavorable foreign currency translation impacted net sales by approximately 2%, or about $80 million.
Third quarter 2019 reported net income from continuing operations was $366 million, or $1.54 per diluted share. Adjusted net income from continuing operations was $396 million, or $1.67 per diluted share. Adjusted figures exclude after-tax items of $30 million for environmental charges and restructuring-related costs. 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. For the third quarter 2019, the reported and adjusted effective tax rates were approximately 23% – higher than the third quarter 2018 reported and adjusted effective tax rates of approximately 18% and 21%, respectively. Detailed reconciliations of the reported to adjusted figures are included below.
“We delivered strong adjusted earnings per share growth of 15% compared to the prior year quarter, as we continue to build momentum and remain focused on operating margin recovery. Strong execution against our cost-savings initiatives and our sixth consecutive quarter with selling price increases of at least 2% aided in our gross profit improvement, as we continue our efforts to offset the significant raw material cost inflation absorbed in the past few years,” said Michael H. McGarry, PPG chairman and CEO. “Our earnings growth came despite notable weakening in industrial production, which was broad - both geographically and by end-use market – and which more significantly impacted our general industrial and automotive OEM coatings businesses. Consistent with our recent quarterly trends, the aerospace coatings and protective and marine coatings businesses posted strong sales growth.
“We made excellent progress executing on our key initiatives, including $20 million of cost savings in the third quarter related to previously announced cost savings programs,” said McGarry. “In addition, we completed the acquisition of Dexmet, a manufacturer of specialty materials for aerospace, automotive and industrial applications. We have completed four acquisitions with combined annual revenues of about $400 million that are benefiting our results this year. We continue to generate strong operating cash flow, with year-to-date cash generation improving by about $600 million in comparison to last year.
“As we look ahead to the fourth quarter, we anticipate global economic growth will remain soft impacting several end-use markets. Many of our customers remain cautious about their ordering patterns and inventory levels. We expect additional margin recovery progress, including the benefit of $20 million of restructuring-related savings year-over-year. We also continue to commercialize innovative products and technologies that provide value to our customers and support incremental sales growth, including our recently announced PPG Envirocron Extreme Protection Edge powder coating and the PPG MOONWALK automated paint mixing system for automotive refinish. Lastly, we ended the quarter with approximately $1.5 billion in cash and cash equivalents, providing us strong flexibility for shareholder value-creating cash deployment.
“We currently expect 2019 full-year adjusted earnings per diluted share to be in the range of $6.17 to $6.27, which is comparable to our July guidance and includes fourth quarter year-over-year growth in constant currencies of about 15% at the mid-point,” McGarry added. “This guidance places our full-year 2019 adjusted earnings-per-share growth at the low-to-mid end of our previously communicated 7% to 10% range, excluding currency translation impacts. We continue to expect full-year sales growth of a low-single-digit percentage, excluding currency translation impacts.”
The company reported the impact of unfavorable currency translation on adjusted earnings per diluted share for the full year is expected to be between 18 and 20 cents.
Third Quarter 2019 Reportable Segment Financial Results
Performance Coatings segment third quarter net sales were about $2.3 billion, 1% higher than the prior year. Sales in constant currencies were approximately $75 million higher than the prior year quarter, or about a 3% increase. Acquisition-related sales were approximately $15 million, driven by SEM and Dexmet. Higher selling prices contributed about 3% to sales. Segment volumes were relatively flat. Unfavorable foreign currency translation lowered net sales by about $50 million, or approximately 2%.
Coatings sales volumes grew by a high-single-digit percentage in the quarter, as growth continued across all major technology platforms. Net sales, excluding the impact of currency and acquisitions (organic sales), for automotive refinish coatings increased by a low-single-digit percentage aided by improved selling prices, which more than offset lower sales volumes stemming from softer collision claim activity. Aggregate organic sales in protective and marine coatings business increased by a mid-single-digit percentage, driven by strong marine coatings sales in Asia and Europe. Year-over-year organic sales in architectural coatings Americas and Asia Pacific increased slightly, with differences by channel and region. In the U.S. and Canada, organic architectural coatings sales grew modestly, led by low-single-digit percentage year-over-year sales growth in the national DIY retail and independent dealer channels. These gains were offset by slightly lower same-store sales in the U.S. and Canada company-owned stores in comparison to strong growth in the prior-year quarter. Organic sales in Latin America grew by a low-single-digit percentage led by higher selling prices. Similarly, architectural coatings EMEA organic sales grew by a low-single-digit percentage also led by higher selling prices.
Income for the third quarter was $380 million, up $49 million, or about 15%, year-over-year, including an unfavorable foreign currency translation impact of $7 million. Segment income benefited from higher selling prices, continued cost management and restructuring initiatives.
Industrial Coatings segment third quarter net sales were $1.5 billion, down about $15 million, or 1%, versus the prior-year period. Acquisition-related sales were approximately $80 million, driven by Whitford and Hemmelrath. Selling prices increased by about 2% but were more than offset by the impact of lower aggregate sales volumes of 6% and unfavorable foreign currency translation of about $30 million, or about 2%, versus the prior year.
OEM coatings sales volumes decreased by a high-single-digit percentage year-over-year driven by lower global automotive industry production rates, including extended and unexpected customer shutdowns during the quarter in multiple regions. Automotive OEM selling prices were higher in each major region. Industrial coatings organic sales decreased by a mid-single-digit percentage versus the prior year, driven by lower sales volumes reflecting broad global industrial production weakness, partly offset by improved selling prices. Packaging coatings organic sales were flat year-over-year.
Income for the third quarter was about $205 million, up nearly $40 million, or about 22%, year-over-year, including an unfavorable foreign currency translation impact of $3 million. Segment income benefited from improved selling prices, acquisition-related income and strong cost management, partially offset by the impact of lower sales volumes.
Third quarter corporate expenses were about $45 million and are expected to be $45 to $50 million in the fourth quarter. Net interest expense was lower than the prior year aided by increased operating cash flow in the current year. The higher adjusted tax rate in the third quarter, as compared to the prior year, had an unfavorable impact to adjusted earnings per diluted share of about 5 cents, as discrete tax items were less favorable than in the previous year. The fourth quarter adjusted effective tax rate on continuing operations is expected to be about 24%.
Third quarter 2019 reported net income from continuing operations was $366 million, or $1.54 per diluted share. Adjusted net income from continuing operations was $396 million, or $1.67 per diluted share. Adjusted figures exclude after-tax items of $30 million for environmental charges and restructuring-related costs. 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. For the third quarter 2019, the reported and adjusted effective tax rates were approximately 23% – higher than the third quarter 2018 reported and adjusted effective tax rates of approximately 18% and 21%, respectively. Detailed reconciliations of the reported to adjusted figures are included below.
“We delivered strong adjusted earnings per share growth of 15% compared to the prior year quarter, as we continue to build momentum and remain focused on operating margin recovery. Strong execution against our cost-savings initiatives and our sixth consecutive quarter with selling price increases of at least 2% aided in our gross profit improvement, as we continue our efforts to offset the significant raw material cost inflation absorbed in the past few years,” said Michael H. McGarry, PPG chairman and CEO. “Our earnings growth came despite notable weakening in industrial production, which was broad - both geographically and by end-use market – and which more significantly impacted our general industrial and automotive OEM coatings businesses. Consistent with our recent quarterly trends, the aerospace coatings and protective and marine coatings businesses posted strong sales growth.
“We made excellent progress executing on our key initiatives, including $20 million of cost savings in the third quarter related to previously announced cost savings programs,” said McGarry. “In addition, we completed the acquisition of Dexmet, a manufacturer of specialty materials for aerospace, automotive and industrial applications. We have completed four acquisitions with combined annual revenues of about $400 million that are benefiting our results this year. We continue to generate strong operating cash flow, with year-to-date cash generation improving by about $600 million in comparison to last year.
“As we look ahead to the fourth quarter, we anticipate global economic growth will remain soft impacting several end-use markets. Many of our customers remain cautious about their ordering patterns and inventory levels. We expect additional margin recovery progress, including the benefit of $20 million of restructuring-related savings year-over-year. We also continue to commercialize innovative products and technologies that provide value to our customers and support incremental sales growth, including our recently announced PPG Envirocron Extreme Protection Edge powder coating and the PPG MOONWALK automated paint mixing system for automotive refinish. Lastly, we ended the quarter with approximately $1.5 billion in cash and cash equivalents, providing us strong flexibility for shareholder value-creating cash deployment.
“We currently expect 2019 full-year adjusted earnings per diluted share to be in the range of $6.17 to $6.27, which is comparable to our July guidance and includes fourth quarter year-over-year growth in constant currencies of about 15% at the mid-point,” McGarry added. “This guidance places our full-year 2019 adjusted earnings-per-share growth at the low-to-mid end of our previously communicated 7% to 10% range, excluding currency translation impacts. We continue to expect full-year sales growth of a low-single-digit percentage, excluding currency translation impacts.”
The company reported the impact of unfavorable currency translation on adjusted earnings per diluted share for the full year is expected to be between 18 and 20 cents.
Third Quarter 2019 Reportable Segment Financial Results
Performance Coatings segment third quarter net sales were about $2.3 billion, 1% higher than the prior year. Sales in constant currencies were approximately $75 million higher than the prior year quarter, or about a 3% increase. Acquisition-related sales were approximately $15 million, driven by SEM and Dexmet. Higher selling prices contributed about 3% to sales. Segment volumes were relatively flat. Unfavorable foreign currency translation lowered net sales by about $50 million, or approximately 2%.
Coatings sales volumes grew by a high-single-digit percentage in the quarter, as growth continued across all major technology platforms. Net sales, excluding the impact of currency and acquisitions (organic sales), for automotive refinish coatings increased by a low-single-digit percentage aided by improved selling prices, which more than offset lower sales volumes stemming from softer collision claim activity. Aggregate organic sales in protective and marine coatings business increased by a mid-single-digit percentage, driven by strong marine coatings sales in Asia and Europe. Year-over-year organic sales in architectural coatings Americas and Asia Pacific increased slightly, with differences by channel and region. In the U.S. and Canada, organic architectural coatings sales grew modestly, led by low-single-digit percentage year-over-year sales growth in the national DIY retail and independent dealer channels. These gains were offset by slightly lower same-store sales in the U.S. and Canada company-owned stores in comparison to strong growth in the prior-year quarter. Organic sales in Latin America grew by a low-single-digit percentage led by higher selling prices. Similarly, architectural coatings EMEA organic sales grew by a low-single-digit percentage also led by higher selling prices.
Income for the third quarter was $380 million, up $49 million, or about 15%, year-over-year, including an unfavorable foreign currency translation impact of $7 million. Segment income benefited from higher selling prices, continued cost management and restructuring initiatives.
Industrial Coatings segment third quarter net sales were $1.5 billion, down about $15 million, or 1%, versus the prior-year period. Acquisition-related sales were approximately $80 million, driven by Whitford and Hemmelrath. Selling prices increased by about 2% but were more than offset by the impact of lower aggregate sales volumes of 6% and unfavorable foreign currency translation of about $30 million, or about 2%, versus the prior year.
OEM coatings sales volumes decreased by a high-single-digit percentage year-over-year driven by lower global automotive industry production rates, including extended and unexpected customer shutdowns during the quarter in multiple regions. Automotive OEM selling prices were higher in each major region. Industrial coatings organic sales decreased by a mid-single-digit percentage versus the prior year, driven by lower sales volumes reflecting broad global industrial production weakness, partly offset by improved selling prices. Packaging coatings organic sales were flat year-over-year.
Income for the third quarter was about $205 million, up nearly $40 million, or about 22%, year-over-year, including an unfavorable foreign currency translation impact of $3 million. Segment income benefited from improved selling prices, acquisition-related income and strong cost management, partially offset by the impact of lower sales volumes.
Third quarter corporate expenses were about $45 million and are expected to be $45 to $50 million in the fourth quarter. Net interest expense was lower than the prior year aided by increased operating cash flow in the current year. The higher adjusted tax rate in the third quarter, as compared to the prior year, had an unfavorable impact to adjusted earnings per diluted share of about 5 cents, as discrete tax items were less favorable than in the previous year. The fourth quarter adjusted effective tax rate on continuing operations is expected to be about 24%.
