Second quarter 2018 net income from continuing operations was $371 million, or $1.51 per diluted share. Second quarter 2018 adjusted net income from continuing operations was $468 million, or $1.90 per diluted share. Adjusted net income excludes after-tax charges for business restructuring of $63 million, or 25 cents per diluted share; accelerated depreciation associated with restructuring actions of $4 million, or two cents per diluted share; continued cost realignment following a previously announced customer assortment change of $8 million, or three cents per diluted share; a legacy legal settlement of $8 million, or three cents per diluted share; an impairment of a non-manufacturing asset of $7 million, or three cents per diluted share; and costs associated with the Company’s recent accounting investigation of $7 million, or three cents per diluted share. The reported and adjusted effective tax rates for the quarter were approximately 22 percent. The company’s effective tax rate is expected to vary from quarter to quarter and is expected to be in the range of 23-to-24 percent for the full year.
Second quarter 2017 net income from continuing operations was $497 million, or $1.92 per diluted share. Second quarter 2017 adjusted net income from continuing operations was $465 million, or $1.80 per diluted share. Adjusted net income excludes an after-tax gain from the sale of the Mexican Plaka wallboard business of $24 million, or nine cents per diluted share; a benefit from a legacy legal settlement of $11 million, or 4 cents per diluted share; and after-tax transaction-related costs of $3 million, or one cent per diluted share. The reported and adjusted effective tax rate for the quarter was about 24 percent.
“During the quarter, we delivered strong net sales growth in local currencies of about 6 percent,” Chairman and CEO Michael McGarry said. “This growth was achieved through solid volume growth and higher selling prices. Our sales volumes grew more than three percent with solid contributions from both of our reporting segments including higher activity in emerging regions. In Performance Coatings, sales volumes grew nearly four percent year-over-year as above-market growth was achieved in aerospace and automotive refinish, and U.S. architectural company-owned stores delivered another strong quarter achieving high-single-digit same-store sales growth. In Industrial Coatings, sales volumes increased nearly three percent, led by above-market growth in packaging coatings and continued growth in the automotive OEM and general industrial coatings businesses.
“In the quarter, raw material and logistics costs continued to increase, including the impacts of higher oil prices and the availability of transportation. We are working diligently to offset these cost pressures by collaborating with our customers on selling price initiatives, with our pricing in the quarter increasing more than two percent year-over-year,” McGarry continued. “In addition, we initiated a new restructuring program in response to a previously announced customer assortment change in our U.S. architectural coatings business and to further offset cost inflation. We expect that this new restructuring program will deliver annualized savings of approximately $85 million upon full implementation. These savings are in addition to the benefits we are realizing from the restructuring program announced in December 2016. Based on these actions, along with our continued focus on operational excellence, we expect the pace of our margin recovery to accelerate in the second half of 2018.
“As we look ahead, we currently do not anticipate any relief from inflationary cost pressures in the third quarter. We expect aggregate global economic growth to remain positive with end-use market activity comparable to the second quarter, adjusted for traditionally lower seasonal demand. However, uncertainties exist regarding global trade policies, which may create uneven demand by region and in certain industries. Specific to PPG, we expect that the previously announced architectural customer assortment change will lower our third quarter year-over-year sales volume growth rate by between 120 and 150 basis points. We remain confident that our leading-edge technologies and products, which are bringing value to our customers, will facilitate our growth going forward,” McGarry added.
“Finally, we repurchased shares totaling nearly $1.1 billion during the first half of 2018 including approximately $460 million in the second quarter. Our acquisition pipeline remains active and we expect to continue our earnings-accretive cash deployment in the second half of 2018. We are committed to deploying a total of $2.4 billion in 2018 on acquisitions and share repurchases as we remain focused on shareholder value creation,” McGarry concluded.
Performance Coatings segment second quarter net sales were approximately $2.5 billion, up $199 million, or nine percent, versus the prior year. Sales in local currencies increased by more than six percent driven by higher selling prices and sales volumes. Favorable foreign currency translation increased net sales by $55 million, or more than two percent.
Aerospace coatings sales volumes grew slightly more than 10 percent due to continued strong customer demand for PPG products in the U.S. and Asia-Pacific. Automotive refinish coatings organic sales increased year-over-year by a mid-single-digit percentage driven by above-market performance in the U.S. and Canada and the emerging regions. Architectural coatings – Americas and Asia-Pacific organic sales advanced a mid-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 sales volumes in the national retail (DIY) accounts and independent dealer channels declined a low-single-digit percentage versus the prior year, including the unfavorable partial quarter impact from a customer assortment change. Latin American architectural coatings sales volumes grew by a mid-single-digit percentage led by Mexico and Central America. Architectural coatings – EMEA sales volumes declined a low-single-digit percentage, in line with expected regional demand but reflecting a sequential improvement over the first quarter. Aggregate protective and marine coatings sales volumes increased by a low-single-digit percentage, with positive contributions from both end-use markets.
Segment income for the first quarter was $428 million, six percent higher than the second quarter 2017, including favorable foreign currency translation of $8 million. Segment income grew due to improved sales volumes and higher selling prices, partially offset by raw material and logistics cost inflation;
Industrial Coatings segment second quarter net sales were about $1.6 billion, up $128 million, or nearly nine percent, versus the prior year. Year-over-year sales volumes increased by nearly three percent, and favorable foreign currency translation added about $40 million, or less than three percent. Selling price increases continued to gain momentum in the second quarter with a greater than a one percent year-over-year improvement. Acquisition-related sales were approximately $30 million, or about two percent.
Automotive OEM coatings net sales volumes increased a low-single-digit percentage, similar to overall global auto OEM industry builds. General industrial coatings sales volumes posted solid sales volume growth with above-market growth in Europe and emerging regions. 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 second quarter was $223 million, down $41 million, or 16 percent, year-over-year, including favorable foreign currency translation of $5 million. Segment income was lower due to elevated raw material and logistics cost inflation, which was partly offset by higher selling prices. Additional selling price initiatives have been secured for the third quarter 2018.
Second quarter corporate expenses were lower due to decreased compensation and benefit costs, including lower pension and other post-employment benefit costs stemming from actions that the company has taken in recent years.