04.19.24
PPG reported financial results for the first quarter 2024.
Tim Knavish, PPG chairman and chief executive officer, commented on the quarter:
We achieved year-over-year adjusted EPS growth for the fifth consecutive quarter despite continued challenges in the macro environment. The company benefited from our well-established businesses in Mexico and China, our second and third largest net sales countries, respectively. We also delivered organic sales growth in India and in several long-cycle businesses such as protective and marine coatings and aerospace coatings, where our backlog grew. These gains were mitigated by a large customer load-in and pass-through energy surcharges in Europe that occurred in the prior-year period, lowering year-over-year sales comparisons by approximately 130 basis points. During this year’s first quarter, we were also impacted by lower demand in Europe, including an early Easter holiday which reduced the number of selling days in March, and ongoing tepid global demand for industrial coatings.
We continue to make progress on returning to our historic segment margin profile with an aggregate segment margin improvement of 60 basis points, marking the sixth consecutive quarter of year-over-year improvement. 2024 is expected to be another year of excellent cash flow, and our balance sheet remains strong, including lower inventories year over year, providing us with ongoing shareholder value creation opportunities. We completed approximately $150 million of share repurchases in the first quarter.
Looking ahead, while global industrial production remains at low absolute levels, we believe that demand in China for our products will deliver solid organic growth. In Europe, demand is expected to stabilize as we progress through 2024, despite unevenness by country. In the U.S., economic conditions have remained subdued in several end-use markets, but we expect overall improvement as the year progresses. In Mexico, we forecast strong momentum to continue.
We are executing on the strategic reviews of the architectural coatings U.S. and Canada business and global silicas products business that we announced in the first quarter. Our target is to determine a path forward for each of these assessments no later than the third quarter.
PPG remains focused on various enterprise growth initiatives to drive higher sales volumes and fully capitalize on our technical and service capabilities. In the second quarter, we expect low single-digit percentage aggregate sales volume growth, led by our aerospace, protective and marine, and packaging coatings businesses and by Mexico, China and India.
Thank you to our more than 50,000 employees around the world who partner with our customers every day to drive mutual success by providing best-in-class paints, coatings and specialty materials, including productivity-enhancing and sustainable solutions.
Performance Coatings net sales were down 1%, as higher selling prices and favorable foreign currency translation were offset by lower sales volumes. Year-over-year first quarter sales volume comparisons were unfavorably impacted by a prior-year, $40 million Walmart® sales load-in benefit and the earlier timing of Easter in 2024.
Sales of PPG’s technology-advantaged aerospace products remained strong, as the business delivered mid-single-digit percentage organic sales growth year over year, while the order backlog increased to $275 million. Protective and marine coatings delivered low single-digit percentage organic sales growth driven by energy and marine-related demand. Automotive refinish coatings organic sales were flat, as a challenging prior year comparison in the U.S. offset solid growth in Asia Pacific, Latin America and Europe. Organic sales for architectural coatings Europe, Middle East and Africa were down by a mid-single-digit percentage, including a shift in the Easter holiday, with lower sales volumes across western Europe more than offsetting strong growth in central and eastern Europe. Architectural coatings in Mexico delivered another solid quarter as we continue to benefit from a growing Mexican economy and our world-class distribution network in the country. Architectural coatings sales in the U.S. and Canada were lower due to the prior-year Walmart® load-in more than offsetting current year growth in the professional contractor segment. Absent the impact of the load-in, year-over-year sales volumes grew a low single-digit percentage in the business.
Segment income increased by 2% versus the prior year primarily due to higher selling prices and input costs, which moderated from record levels, and were partially offset by lower sales volumes and increased wages. Segment operating margins increased by 40 basis points year over year.
Industrial Coatings segment net sales were lower compared to the first quarter 2023 due to lower selling prices and slightly lower sales volumes. The lower price includes the impact from the absence of European energy surcharges that occurred in the first quarter 2023 reflecting exceedingly high energy prices in the region, impacting year-over-year comparisons by approximately 100 basis points.
Automotive original equipment manufacturer coatings organic sales decreased by a low single-digit percentage due to lower index-based selling prices and lower industry volumes in the U.S. and Europe, offset by PPG above-market growth in Asia Pacific and Mexico. Industrial coatings organic sales declined by a mid-single-digit percentage with subdued industrial activity in the U.S., Latin America and Europe more than offsetting strong PPG growth in China and India. Packaging coatings organic sales were flat year over year with solidly higher volumes stemming from PPG share gains offset by lower, index-based pricing.
Segment income was 4% higher than the prior year, as input costs moderated from historically high levels and manufacturing performance improved, which more than offset the impact from lower organic sales and higher wages. Segment margins improved by 100 basis points compared to the first quarter 2023. Lower pricing from the absence of European energy surcharges was offset by lower energy-related input costs.
Additional Financial Information
• At quarter end, the company had cash and short-term investments totaling $1.2 billion. Net debt was $5.0 billion, down $0.8 billion from the first quarter 2023.
• Corporate expenses were $83 million in the first quarter, which was $16 million higher than the prior year, primarily due to inflation, increased benefits costs, and growth-related investments.
• Net interest expense was $13 million in the first quarter.
• The effective tax rate was approximately 24% in the first quarter.
Outlook
The company reported the following projections for the second quarter and full-year 2024 based on current global economic activity, continued uneven global industrial production, uneven but stabilizing demand in Europe, continued growth in Mexico and solid PPG performance in China.
The effective tax rate for the second quarter 2024 is expected to be between 23.5% to 24.5%, slightly higher than prior year, including the impact of several regional tax rate increases and the expected mix of country-specific earnings.
Additional information related to 2024 financial projections are available in the detailed commentary and associated presentation slides related to the first quarter financial information which are posted within the Investors section of PPG.com.
The term organic sales as used in this press release is defined as net sales excluding the impact of currency, acquisitions and divestitures.
Chairman and CEO Comments
Tim Knavish, PPG chairman and chief executive officer, commented on the quarter:
We achieved year-over-year adjusted EPS growth for the fifth consecutive quarter despite continued challenges in the macro environment. The company benefited from our well-established businesses in Mexico and China, our second and third largest net sales countries, respectively. We also delivered organic sales growth in India and in several long-cycle businesses such as protective and marine coatings and aerospace coatings, where our backlog grew. These gains were mitigated by a large customer load-in and pass-through energy surcharges in Europe that occurred in the prior-year period, lowering year-over-year sales comparisons by approximately 130 basis points. During this year’s first quarter, we were also impacted by lower demand in Europe, including an early Easter holiday which reduced the number of selling days in March, and ongoing tepid global demand for industrial coatings.
We continue to make progress on returning to our historic segment margin profile with an aggregate segment margin improvement of 60 basis points, marking the sixth consecutive quarter of year-over-year improvement. 2024 is expected to be another year of excellent cash flow, and our balance sheet remains strong, including lower inventories year over year, providing us with ongoing shareholder value creation opportunities. We completed approximately $150 million of share repurchases in the first quarter.
Looking ahead, while global industrial production remains at low absolute levels, we believe that demand in China for our products will deliver solid organic growth. In Europe, demand is expected to stabilize as we progress through 2024, despite unevenness by country. In the U.S., economic conditions have remained subdued in several end-use markets, but we expect overall improvement as the year progresses. In Mexico, we forecast strong momentum to continue.
We are executing on the strategic reviews of the architectural coatings U.S. and Canada business and global silicas products business that we announced in the first quarter. Our target is to determine a path forward for each of these assessments no later than the third quarter.
PPG remains focused on various enterprise growth initiatives to drive higher sales volumes and fully capitalize on our technical and service capabilities. In the second quarter, we expect low single-digit percentage aggregate sales volume growth, led by our aerospace, protective and marine, and packaging coatings businesses and by Mexico, China and India.
Thank you to our more than 50,000 employees around the world who partner with our customers every day to drive mutual success by providing best-in-class paints, coatings and specialty materials, including productivity-enhancing and sustainable solutions.
Performance Coatings net sales were down 1%, as higher selling prices and favorable foreign currency translation were offset by lower sales volumes. Year-over-year first quarter sales volume comparisons were unfavorably impacted by a prior-year, $40 million Walmart® sales load-in benefit and the earlier timing of Easter in 2024.
Sales of PPG’s technology-advantaged aerospace products remained strong, as the business delivered mid-single-digit percentage organic sales growth year over year, while the order backlog increased to $275 million. Protective and marine coatings delivered low single-digit percentage organic sales growth driven by energy and marine-related demand. Automotive refinish coatings organic sales were flat, as a challenging prior year comparison in the U.S. offset solid growth in Asia Pacific, Latin America and Europe. Organic sales for architectural coatings Europe, Middle East and Africa were down by a mid-single-digit percentage, including a shift in the Easter holiday, with lower sales volumes across western Europe more than offsetting strong growth in central and eastern Europe. Architectural coatings in Mexico delivered another solid quarter as we continue to benefit from a growing Mexican economy and our world-class distribution network in the country. Architectural coatings sales in the U.S. and Canada were lower due to the prior-year Walmart® load-in more than offsetting current year growth in the professional contractor segment. Absent the impact of the load-in, year-over-year sales volumes grew a low single-digit percentage in the business.
Segment income increased by 2% versus the prior year primarily due to higher selling prices and input costs, which moderated from record levels, and were partially offset by lower sales volumes and increased wages. Segment operating margins increased by 40 basis points year over year.
Industrial Coatings segment net sales were lower compared to the first quarter 2023 due to lower selling prices and slightly lower sales volumes. The lower price includes the impact from the absence of European energy surcharges that occurred in the first quarter 2023 reflecting exceedingly high energy prices in the region, impacting year-over-year comparisons by approximately 100 basis points.
Automotive original equipment manufacturer coatings organic sales decreased by a low single-digit percentage due to lower index-based selling prices and lower industry volumes in the U.S. and Europe, offset by PPG above-market growth in Asia Pacific and Mexico. Industrial coatings organic sales declined by a mid-single-digit percentage with subdued industrial activity in the U.S., Latin America and Europe more than offsetting strong PPG growth in China and India. Packaging coatings organic sales were flat year over year with solidly higher volumes stemming from PPG share gains offset by lower, index-based pricing.
Segment income was 4% higher than the prior year, as input costs moderated from historically high levels and manufacturing performance improved, which more than offset the impact from lower organic sales and higher wages. Segment margins improved by 100 basis points compared to the first quarter 2023. Lower pricing from the absence of European energy surcharges was offset by lower energy-related input costs.
Additional Financial Information
• At quarter end, the company had cash and short-term investments totaling $1.2 billion. Net debt was $5.0 billion, down $0.8 billion from the first quarter 2023.
• Corporate expenses were $83 million in the first quarter, which was $16 million higher than the prior year, primarily due to inflation, increased benefits costs, and growth-related investments.
• Net interest expense was $13 million in the first quarter.
• The effective tax rate was approximately 24% in the first quarter.
Outlook
The company reported the following projections for the second quarter and full-year 2024 based on current global economic activity, continued uneven global industrial production, uneven but stabilizing demand in Europe, continued growth in Mexico and solid PPG performance in China.
The effective tax rate for the second quarter 2024 is expected to be between 23.5% to 24.5%, slightly higher than prior year, including the impact of several regional tax rate increases and the expected mix of country-specific earnings.
Additional information related to 2024 financial projections are available in the detailed commentary and associated presentation slides related to the first quarter financial information which are posted within the Investors section of PPG.com.
The term organic sales as used in this press release is defined as net sales excluding the impact of currency, acquisitions and divestitures.
