04.18.19
PPG reported first-quarter 2019 net sales of approximately $3.6 billion, down about four percent versus the prior year. Net sales in constant currencies were flat with the prior year aided by higher selling prices of 2.6 percent. Sales volumes were down about three percent versus the prior year in aggregate. Approximately half of this volume decrease was related to the previously announced architectural coatings customer-assortment changes in the national retail do-it-yourself (DIY) channel. Unfavorable foreign currency translation impacted net sales by more than four percent, or about $165 million, and acquisition-related sales, net of divestitures, added less than 1 percent to sales growth.
First quarter 2019 reported net income from continuing operations was $312 million, or $1.31 per diluted share, and adjusted net income from continuing operations was $330 million, or $1.38 per diluted share. First quarter 2018 reported net income from continuing operations was $328 million, or $1.31 per diluted share, and adjusted net income from continuing operations was $357 million, or $1.42 per diluted share. For the first quarter 2019, the reported and adjusted effective tax rate was about 24 percent, higher than the first quarter 2018 reported and adjusted effective tax rate of approximately 21 percent. Reconciliations of the reported to adjusted figures are included below.
“First quarter operating margins were higher than the prior year, despite a challenging global macro-economic environment and industry demand declines in certain markets. We achieved improved margins through continued selling-price initiatives. This marks the eighth consecutive quarter with improved sequential pricing,” said Michael H. McGarry, PPG chairman and CEO. “We continued to experience cost inflation in raw materials, logistics and wages, and have additional initiatives underway to offset the cumulative impacts from this inflationary cycle.
“During the first quarter, we achieved strong double-digit percentage sales volume growth in our aerospace and protective and marine coatings businesses. However, our aggregate sales volumes were lower due to weaker industry demand in automotive OEM and in certain segments of general industrial coatings. In addition, our focus on margin recovery resulted in us passing on certain, modest levels of business during the quarter.
“We are happy to welcome SEM, Whitford and Hemmelrath to the PPG family, having now closed all three recently announced acquisitions. Our pipeline for acquisitions remains active and we continue to focus our cash deployment on maximizing long-term shareholder value,” said McGarry.
“As we look ahead to the second quarter compared with the prior year, we expect industry demand in several of our markets to remain mixed but anticipate gradual improvement over the first quarter of this year. We will continue to aggressively manage our cost structure, work to secure additional pricing to reflect the value of products we sell and integrate our recent acquisitions. We currently expect second quarter earnings per diluted share to be in the range of $1.76 to $1.86, including unfavorable currency translation impacts similar to those realized in the first quarter,” McGarry added.
“More broadly, we remain optimistic that economic activity will improve in the second half of the year, particularly in China. We will continue to monitor the macro environment and be prepared to implement further cost-savings initiatives if warranted. We are still targeting full-year sales growth of three to five percent and adjusted earnings-per-share growth of 7 to 10 percent, both excluding currency translation impacts,” McGarry concluded.
Performance Coatings segment first quarter net sales were $2.1 billion, down $52 million, or about two percent, versus the prior year. Sales in constant currencies increased by about two percent, driven by increased selling prices. Acquisition-related sales were approximately $15 million, primarily the acquisition of automotive refinish products manufacturer SEM. Segment volumes were lower by about two percent, including the prior year national retail do-it-yourself (DIY) customer-assortment changes, which reduced segment sales by more than two percent, or about $60 million year-over-year. Unfavorable foreign currency translation lowered net sales by about $85 million, or nearly four percent.
Aerospace coatings net sales volumes grew over 10 percent for the fourth consecutive quarter, supported by growth across all major technology platforms and outpacing strong industry demand. Organic sales results for automotive refinish coatings were modestly lower as soft industry demand in Europe was partially offset by solid growth in emerging regions. Aggregate sales volumes in the protective and marine coatings business increased by about 10 percent, with positive contributions from both segments. Year-over-year organic sales in architectural coatings – Americas and Asia-Pacific declined a high-single-digit percentage, with differences by channel and region. In the U.S. and Canada, company-owned architectural coatings same-store sales grew by a low-single-digit percentage. Aggregate year-over-year volumes in the DIY national retail and independent dealer channels declined significantly driven by the customer-assortment changes. Latin American architectural coatings organic sales volumes were modestly lower due to a shift in quarterly timing of the Easter holiday promotion versus the prior year. Architectural coatings – EMEA organic sales increased by a mid-single-digit percentage for the second consecutive quarter, with solid contributions from both selling price increases and sales volume growth.
Segment income for the first quarter was $297 million, up $17 million, or about six percent, year-over-year, including unfavorable foreign currency translation impacts of about $10 million. Segment income was aided by higher selling prices and continued execution of cost management and restructuring initiatives, offset by raw material and logistics cost inflation and the impact from lower architectural coatings DIY retail sales volumes in the U.S.
Industrial Coatings segment first quarter net sales were about $1.5 billion, down $105 million, or six percent, versus the prior-year period. Higher selling prices of more than two percent partially offset lower sales volumes of about five percent. Acquisition-related sales were approximately $15 million, driven by the acquisition of Whitford, which was finalized in March. Unfavorable foreign currency translation lowered sales by about $80 million, or about five percent, versus the prior year.
Automotive OEM coatings sales volumes decreased by a high-single-digit percentage year-over-year, consistent with lower global automotive industry production rates, including a pronounced decrease in China demand. Selling prices for this business were higher in each major region and were comparable to the company average. For the industrial coatings business, sales volumes decreased versus the prior year, mainly due to lower industrial production demand in most regions. Packaging coatings sales volumes decreased by a low-single-digit percentage year-over-year in comparison to above-market growth in the prior year quarter stemming from technology-based customer conversions.
Segment income for the first quarter was $218 million, down $21 million, or about nine percent, year-over-year, including unfavorable foreign currency translation impacts of about $10 million. Segment income was impacted by continued raw material and logistics cost inflation and lower sales volumes related to lower global industrial activity, partially offset by improving selling prices and strong cost management.
Businesses within both reporting segments are continuing to aggressively manage costs and execute previously announced restructuring initiatives. Restructuring actions delivered about $20 million of cost savings in the first quarter, consistent with company targets. Also, combined first-quarter corporate and legacy expenses were about $50 million and are expected to be $45 to $50 million in the second quarter.
The company continues to work on the previously communicated strategic review of its business portfolio and remains committed to finalizing the review by the end of the second quarter 2019.
