- Record third quarter net sales of $4.5 billion, up about 8% in
constant currencies
- Organic sales growth of more than 9% driven by higher selling
prices, which are up 18% on a two-year stacked basis
- Reported earnings per diluted share from continuing operations
(EPS) of $1.39 and adjusted EPS of $1.66
- Inflationary cost pressures persisted with raw material cost
inflation of nearly 40% on two-year stack; energy costs continue to
rise
- Expect improving pace of year-over-year segment operating
margin recovery in fourth quarter and into 2023
PPG (NYSE:PPG) today reported financial results for the third
quarter 2022.
Third Quarter Consolidated Results
$ in millions, except EPS
3Q
2022
3Q
2021
Y-O-Y
change
Net sales*
$4,468
$4,372
+2%
Net income
$329
$344
-4%
Adjusted net income**
$393
$406
-3%
EPS
$1.39
$1.43
-3%
Adjusted EPS**
$1.66
$1.69
-2%
*Components of year-over-year net sales
change: higher selling prices (+12%), lower sales volumes (-3%),
divestiture-related sales and the wind down of Russia operations
(-1%), unfavorable foreign currency translation (-6%)
**Detailed reconciliations of reported to
adjusted figures are included below
Chairman and CEO Comments
Michael H. McGarry, PPG chairman and chief executive officer,
commented on the quarter:
We achieved record sales in the third quarter driven by
continued selling price realization, resulting in more than a 12%
increase in selling prices versus the third quarter 2021 and an 18%
increase on a two-year stacked basis. However, as we previously
communicated, sales volumes were impacted by further softening
demand in Europe and less sequential quarterly demand recovery in
China than was expected due to a resumption of certain
pandemic-related restrictions. These factors, along with worsening
foreign currency translation impacts, caused our sales growth to be
lower than anticipated at the beginning of the quarter.
The higher year-over-year sales were aided by record sales in
our PPG Comex and global automotive refinish businesses. In
addition, both the aerospace and automotive original equipment
manufacturer (OEM) coatings businesses delivered double-digit
percentage sales volume gains, though demand in both industries
remains well below pre-pandemic levels. Overall supply chain
disruptions continued to broadly ease throughout the quarter;
however, a few lingering short-supplied raw materials had impacts
across several businesses. At quarter-end, the automotive refinish
and aerospace coatings businesses continued to have much larger
than traditional order backlogs totaling about $200 million.
Looking ahead, normal seasonal demand trends are anticipated in
the fourth quarter. In addition, economic activity is forecasted to
remain soft in Europe and China, and demand for architectural
do-it-for-yourself (DIY) paint products is likely to continue to
weaken on a global basis. Due to the reduced economic activity, an
additional cost restructuring program is now underway focused on
fast payback actions targeting $70 million of annualized savings
upon full implementation. We continue to expect our business
portfolio to prove more resilient in the coming quarters as several
of our larger businesses, including automotive OEM and aerospace
coatings, are anticipated to deliver growth due to large supply
deficits and low inventories in these end-use markets. Finally, we
expect that our year-over-year operating margins will improve in
the fourth quarter and into 2023 as we work to restore our
historical margin profile through our actions to fully offset
inflation and manage our costs.
Lastly, I want to thank our global employees who demonstrate The
PPG Way every day by continuing to overcome unexpected challenges
to provide our customers across the world with the products and
excellent service they rely on.
Third Quarter 2022 Reportable Segment Financial
Results
- Performance Coatings
segment
$ in millions
3Q
2022
3Q
2021
Y-O-Y
change
Net sales
$2,705
$2,758
-2%
Segment income
$362
$408
-11%
Segment income %
13.4%
14.8%
Sales volumes
-6%
Selling prices
+11%
Divestitures and wind down of Russia
-1%
Foreign currency translation
-6%
Performance Coatings net sales decreased due to lower sales
volumes, the impact of divestitures, the wind down of business in
Russia, and unfavorable foreign currency translation impacts. These
items were partially offset by selling price increases in all
businesses.
Supply chain disruptions continued to moderate during the
quarter, albeit with some remaining challenges. Most notably,
disruptions continued to impact the automotive refinish and
aerospace coatings businesses. As expected, demand for
architectural coatings DIY products in Europe remained soft due to
decreased consumer confidence and customer inventory destocking
stemming from current geopolitical issues. Sales volumes in the
U.S. architectural coatings business were also impacted by weaker
DIY demand, which offset positive trends related to our recently
announced expanded relationship with The Home Depot® in the
professional paint channel. Automotive refinish coatings organic
sales grew by a mid-single-digit percentage driven by higher
selling prices that were partially offset by lower sales volumes,
most notably in China due to COVID-19 restrictions. Aerospace sales
volumes were up more than 10% compared to third quarter 2021 as
aftermarket demand continued to recover and commercial new build
activity began to improve. Traffic solutions delivered organic
sales growth of more than 10% compared to the prior year. Organic
sales in the protective and marine coatings business grew by a
low-single-digit percentage despite COVID-19 restrictions in China
negatively impacting sales volumes.
Segment income was lower than the prior year mainly due to raw
material, logistics, and labor cost inflation, the impact of lower
sales volumes, unfavorable currency translation and increased
manufacturing costs, partially offset by higher selling prices
coupled with restructuring cost savings. Unfavorable foreign
currency translation negatively impacted segment earnings by nearly
$25 million.
- Industrial Coatings
segment
$ in millions
3Q
2022
3Q
2021
Y-O-Y
change
Net sales
$1,763
$1,614
+9%
Segment income
$192
$140
+37%
Segment income %
10.9%
8.7%
Sales volumes
+2%
Selling prices
+14%
Divestitures and wind down of Russia
-1%
Foreign currency translation
-6%
Industrial Coatings net sales increased due to higher selling
prices across all businesses and increased sales volumes, partially
offset by unfavorable foreign currency translation and the wind
down of business in Russia. Automotive OEM coatings organic sales
were up more than 20% due to higher selling prices and sales
volumes, including record sales in Asia Pacific reflecting the
company’s strong position in this region and robust retail sales in
China. Automotive OEM customer production outages due to component
shortages continued to impact sales in the U.S. and Europe, but
moderated year-over-year. Industrial coatings organic sales were up
a high single-digit percentage driven by strong selling price
realization, partially offset by lower sales volumes in Europe and
China due to softer industrial production activity. Packaging
coatings delivered organic sales growth of about 10% led by higher
selling prices and continued U.S. sales volume strength.
Segment income was higher than the prior year by $52 million
mainly due to higher selling prices and improving sales volumes,
partially offset by increased raw material and energy costs and
foreign currency translation. Segment margins improved on a
sequential quarterly basis compared to the second quarter 2022.
Additional Financial Information
- At quarter end, the company had cash and short-term investments
totaling about $1.1 billion. Net debt was $5.7 billion, about $400
million lower than the end of the second quarter 2022. Inventories
declined in comparison to the second quarter and the company
remains focused on further reductions in the fourth quarter,
including destocking higher-than-normal raw material
inventories.
- Corporate expenses were about $60 million in the third
quarter.
- Acquisition-related synergies and business restructuring
programs delivered about $25 million of cost savings.
- The company’s reported and adjusted effective tax rates for the
third quarter were about 19% and 20%, respectively.
Outlook
The company today reported the following projections for the
fourth quarter 2022 based on current global economic activity and
in consideration of the near-term economic uncertainty associated
with the impact of geopolitical issues in Europe and the continuing
pandemic:
- Aggregate sales volumes down a mid-single-digit percentage year
over year
- Corporate expenses of between $55 million and $60 million
- Net interest expense of between $35 million and $40
million
- Effective tax rate of about 20%
- Reported EPS of $0.90 to $1.05
- Adjusted EPS of $1.05 to $1.20, excluding amortization expense
of $0.13 and costs related to previously approved and communicated
business restructuring of $0.02.
A detailed commentary and associated presentation slides related
to the third quarter financial information is posted on the
company’s investor relations website.
The term organic sales as used in this press release is defined
as net sales excluding the impact of currency, divestitures, and
the wind down of Russia operations.
PPG: WE PROTECT AND BEAUTIFY THE WORLD®
At PPG (NYSE:PPG), we work every day to develop and deliver the
paints, coatings and specialty materials that our customers have
trusted for nearly 140 years. Through dedication and creativity, we
solve our customers’ biggest challenges, collaborating closely to
find the right path forward. With headquarters in Pittsburgh, we
operate and innovate in more than 75 countries and reported net
sales of $16.8 billion in 2021. We serve customers in construction,
consumer products, industrial and transportation markets and
aftermarkets. To learn more, visit www.ppg.com.
The PPG Logo and We protect and beautify the world are
registered trademarks of PPG Industries Ohio, Inc.
Additional Information
PPG will provide detailed commentary regarding its financial
performance, including presentation-slide content, on the PPG
Investor Center at www.ppg.com at about 4:30 p.m. ET today, October
19. The company will hold a conference call to review its third
quarter 2022 financial performance on October 20, at 8:00 a.m. ET.
Participants can pre-register for the conference by navigating to
https://www.netroadshow.com/events/login?show=0d492aeb&confId=42260.
The conference call also will be available in listen-only mode
via Internet broadcast from the PPG Investor Center at www.ppg.com.
A telephone replay will be available, October 20, beginning at
approximately 10:30 a.m. ET, through November 3, at 11:59 p.m. ET.
The dial-in numbers for the replay are: in the United States,
1-866-813-9403; Canada, 1-226-828-7578; UK, (Local) 0204-525-0658;
international, +44-204-525-0658; passcode 120928. A Web replay also
will be available shortly after the call on the PPG Investor Center
at www.ppg.com, and will remain through Thursday, October 19,
2023.
Forward-Looking Statements
Statements contained herein relating to matters that are not
historical facts are forward-looking statements reflecting PPG’s
current view with respect to future events and financial
performance. These matters within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, involve risks and
uncertainties that may affect PPG’s operations, as discussed in the
company’s filings with the Securities and Exchange Commission
pursuant to Sections 13(a), 13(c) or 15(d) of the Exchange Act, and
the rules and regulations promulgated thereunder. Accordingly, many
factors could cause actual results to differ materially from the
forward-looking statements contained herein. Such factors include
statements related to the expected effects on our business of
COVID-19, global economic conditions, geopolitical issues in
Europe, the amount of future share repurchases, increasing price
and product competition by our competitors, fluctuations in cost
and availability of raw materials, energy, labor and logistics, the
ability to achieve selling price increases, the ability to recover
margins, customer inventory levels, PPG inventory levels, the
ability to maintain favorable supplier relationships and
arrangements, the timing of realization of anticipated cost savings
from restructuring and other initiatives, the ability to identify
additional cost savings opportunities, the timing and expected
benefits of potential future and completed acquisitions,
difficulties in integrating acquired businesses and achieving
expected synergies therefrom, economic and political conditions in
international markets, the ability to penetrate existing,
developing and emerging foreign and domestic markets, foreign
exchange rates and fluctuations in such rates, fluctuations in tax
rates, the impact of future legislation, the impact of
environmental regulations, unexpected business disruptions, the
unpredictability of existing and possible future litigation,
including asbestos litigation, and governmental investigations.
However, it is not possible to predict or identify all such
factors. Consequently, while the list of factors presented here and
in our 2021 Annual Report on Form 10-K and June 30, 2022 Form 10-Q
are considered representative, no such list should be considered to
be a complete statement of all potential risks and uncertainties.
Unlisted factors may present significant additional obstacles to
the realization of forward-looking statements. Consequences of
material differences in results compared with those anticipated in
the forward-looking statements could include, among other things,
lower sales or earnings, business disruption, operational problems,
financial loss, legal liability to third parties and similar risks,
any of which could have a material adverse effect on PPG’s
consolidated financial condition, results of operations or
liquidity.
All information in this release speaks only as of October 19,
2022, and any distribution of this release after that date is not
intended and will not be construed as updating or confirming such
information. PPG undertakes no obligation to update any
forward-looking statement, except as otherwise required by
applicable law.
Regulation G Reconciliation
PPG believes investors’ understanding of the company’s
performance is enhanced by the disclosure of net income, earnings
per diluted share from continuing operations and PPG’s effective
tax rate adjusted for certain items. PPG’s management considers
this information useful in providing insight into the company’s
ongoing performance because it excludes the impact of items that
cannot reasonably be expected to recur on a quarterly basis or that
are not attributable to our primary operations. Net income,
earnings per diluted share from continuing operations and the
effective tax rate adjusted for these items are not recognized
financial measures determined in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”) and should not be
considered a substitute for net income, earnings per diluted share,
the effective tax rate or other financial measures as computed in
accordance with U.S. GAAP. In addition, adjusted net income,
adjusted earnings per diluted share and the adjusted effective tax
rate may not be comparable to similarly titled measures as reported
by other companies.
Regulation G Reconciliation - Net Income and Earnings per
Diluted Share ($ in millions, except per-share amounts)
Third Quarter 2022
Third Quarter 2021
$
EPS(a)
$
EPS(a)
Reported net income from continuing
operations
$329
$1.39
$344
$1.43
Acquisition-related amortization
expense
30
0.13
35
0.15
Business restructuring-related costs,
net(b)
34
0.14
(18)
(0.08)
Transaction-related costs(c)
—
—
33
0.14
Impairment and other related charges,
net(d)
—
—
12
0.05
Adjusted net income from continuing
operations, excluding certain items
$393
$1.66
$406
$1.69
Third Quarter 2022
Third Quarter 2021
Income Before Income
Taxes
Income Tax Expense
Effective Tax Rate
Income Before Income
Taxes
Income Tax Expense
Effective Tax Rate
Effective tax rate, continuing
operations
$418
$79
18.9
%
$441
$96
21.8
%
Acquisition-related amortization
expense
40
10
24.6
%
46
11
24.6
%
Business restructuring-related costs,
net(b)
45
11
25.4
%
(25)
(7)
29.9
%
Transaction-related costs(c)
—
—
—
%
43
10
24.9
%
Impairment and other related charges,
net(d)
—
—
—
%
21
6
29.2
%
Adjusted effective tax rate, continuing
operations, excluding certain items
$503
$100
19.9
%
$526
$116
22.1
%
(a)
Earnings per diluted share is calculated
based on unrounded numbers. Figures in the table may not
recalculate due to rounding.
(b)
Included in business restructuring-related
costs, net are business restructuring charges, accelerated
depreciation of certain assets and other related costs, offset by
releases related to previously approved programs and a $34 million
gain on the sale of certain assets in the third quarter 2021 in
connection with the Company’s manufacturing footprint consolidation
plans and associated restructuring programs. This gain is included
in Other income, net in the condensed consolidated statement of
income.
(c)
Transaction-related costs include
advisory, legal, accounting, valuation, other professional or
consulting fees, and certain internal costs directly incurred to
effect acquisitions, as well as similar fees and other costs to
effect disposals not classified as discontinued operations. These
costs are included in Selling, general and administrative expense
in the condensed consolidated statement of income.
Transaction-related costs, net also includes the impact for the
step up to fair value of inventory acquired in certain
acquisitions, which are included in Cost of sales, exclusive of
depreciation and amortization in the condensed consolidated
statement of income.
(d)
An impairment charge was recorded in the
third quarter 2021 related to the previously planned sale of
certain smaller entities in non-strategic regions. Net loss of $12
million is attributable to PPG and net loss of $3 million is
attributable to noncontrolling interests.
PPG INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited) (All
amounts in millions except per-share data)
Three Months Ended
Nine Months Ended
September 30
September 30
2022
2021
2022
2021
Net sales
$
4,468
$
4,372
$
13,467
$
12,612
Cost of sales, exclusive of depreciation and amortization
2,821
2,733
8,473
7,594
Selling, general and administrative
931
950
2,887
2,796
Depreciation
95
100
296
286
Amortization
40
46
125
126
Research and development, net
110
114
340
323
Interest expense
46
30
114
91
Interest income
(14
)
(7
)
(34
)
(19
)
Impairment and other related charges, net
-
21
230
21
Business restructuring, net
36
-
36
(21
)
Other income, net
(15
)
(56
)
(62
)
(118
)
Income before income taxes
$
418
$
441
$
1,062
$
1,533
Income tax expense
79
96
252
370
Income from continuing operations
339
345
810
1,163
Loss from discontinued operations, net of tax
-
-
(2
)
-
Net income attributable to controlling and noncontrolling interests
$
339
$
345
$
808
$
1,163
Net income attributable to noncontrolling interests
(10
)
(1
)
(20
)
(10
)
Net income (attributable to PPG)
$
329
$
344
$
788
$
1,153
Amounts attributable to PPG: Income from continuing
operations, net of tax
$
329
$
344
$
790
$
1,153
Loss from discontinued operations, net of tax
-
-
(2
)
-
Net income (attributable to PPG)
$
329
$
344
$
788
$
1,153
Earnings per common share (attributable to PPG) Income from
continuing operations, net of tax
$
1.40
$
1.45
$
3.34
$
4.85
Loss from discontinued operations, net of tax
-
-
(0.01
)
-
Net income (attributable to PPG)
$
1.40
$
1.45
$
3.33
$
4.85
Earnings per common share (attributable to PPG) - assuming
dilution Income from continuing operations, net of tax
$
1.39
$
1.43
$
3.33
$
4.81
Loss from discontinued operations, net of tax
-
-
(0.01
)
-
Net income (attributable to PPG)
$
1.39
$
1.43
$
3.32
$
4.81
Average shares outstanding
235.5
237.9
236.2
237.7
Average shares outstanding - assuming dilution
236.6
239.8
237.5
239.5
PPG INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS HIGHLIGHTS
(unaudited) ($ in millions)
Nine Months Ended
September 30
2022
2021
Cash from operating activities - continuing operations
$
376
$
1,106
Cash used for investing activities: Capital expenditures
$
368
$
220
Business acquisitions, net of cash balances acquired
$
43
$
2,137
Financing activities: Dividends paid on PPG common stock
$
424
$
396
PPG INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET HIGHLIGHTS (unaudited)
($ in millions)
September 30
December 31
September 30
2022
2021
2021
Current assets: Cash and cash equivalents
$
1,029
$
1,005
$
1,216
Short-term investments
60
67
88
Receivables, net
3,541
3,152
3,382
Inventories
2,411
2,171
2,249
Other current assets
449
379
365
Total current assets
$
7,490
$
6,774
$
7,300
Current liabilities: Short-term debt and current portion of
long-term debt
$
314
$
9
$
704
Accounts payable and accrued liabilities
4,299
4,392
4,378
Current portion of operating lease liabilities
178
192
194
Restructuring reserves
135
173
187
Total current liabilities
$
4,926
$
4,766
$
5,463
Long-term debt
$
6,478
$
6,572
$
6,092
PPG OPERATING METRICS (unaudited) ($ in millions)
September 30
December 31
September 30
2022
2021
2021
Operating Working Capital (a)
$
2,994
$
2,298
$
2,671
As a percent of quarter sales, annualized
16.8
%
13.7
%
15.3
%
(a) Operating working capital includes: (1) receivables from
customers, net of allowance for doubtful accounts, (2) FIFO
inventories and (3) trade liabilities.
PPG INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BUSINESS SEGMENT INFORMATION (unaudited) ($
in millions)
Three Months Ended
Nine Months Ended
September 30
September 30
2022
2021
2022
2021
Net sales Performance Coatings
$
2,705
$
2,758
$
8,204
$
7,826
Industrial Coatings
1,763
1,614
5,263
4,786
Total
$
4,468
$
4,372
$
13,467
$
12,612
Segment income Performance Coatings
$
362
$
408
$
1,127
$
1,248
Industrial Coatings
192
140
488
575
Total
$
554
$
548
$
1,615
$
1,823
Items not allocated to segments Corporate
(59
)
(45
)
(166
)
(149
)
Interest expense, net of interest income
(32
)
(23
)
(80
)
(72
)
Impairment and other related charges, net (Note A)
-
(21
)
(230
)
(21
)
Business restructuring-related costs, net (Note B)
(45
)
25
(67
)
40
Transaction-related costs (Note C)
-
(43
)
(10
)
(81
)
Environmental remediation charges
-
-
-
(26
)
Expenses incurred due to natural disasters (Note D)
-
-
-
(17
)
Change in allowance for doubtful accounts related to COVID-19
-
-
-
14
Income from legal settlements
-
-
-
22
Income before income taxes
$
418
$
441
$
1,062
$
1,533
Note A: In the first quarter 2022, the Company recorded impairment
and other related charges due to the wind down of the company’s
operations in Russia. In the second quarter 2022, the Company
released a portion of the previously established reserves for
Receivables and Inventories due to the collection of certain trade
receivables and the realization of certain inventories. In the
third quarter 2021, an impairment charge was recorded related to
the previously planned sale of certain smaller entities in
non-strategic regions. Note B: Included in business
restructuring-related costs, net are business restructuring
charges, accelerated depreciation of certain assets and other
related costs, offset by releases related to previously approved
programs and a $34 million gain on the sale of certain assets
recognized in the third quarter 2021 in connection with the
Company’s manufacturing footprint consolidation plans and
associated restructuring programs. This gain is included in Other
income, net in the condensed consolidated statement of income.
Note C: Transaction-related costs include advisory, legal,
accounting, valuation, other professional or consulting fees, and
certain internal costs directly incurred to effect acquisitions, as
well as similar fees and other costs to effect disposals not
classified as discontinued operations. These costs are included in
Selling, general and administrative expense in the condensed
consolidated statement of income. Transaction-related costs also
include losses on the sale of certain assets, which are included in
Other income, net in the condensed consolidated statement of
income, and the impact for the step up to fair value of inventory
acquired in certain acquisitions, which are included in Cost of
sales, exclusive of depreciation and amortization in the condensed
consolidated statement of income. Note D: In early 2021, a
winter storm damaged a southern U.S. factory supporting the
Company's specialty coatings and materials business as well as
other Company factories in the southern U.S. Incremental expenses
incurred due to this storm included costs related to maintenance
and repairs of damaged property, freight and utility premiums and
other incremental expenses directly related to the impacted areas.
CATEGORY Corporate
CATEGORY Financial
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221019005790/en/
PPG Media Contact: Mark Silvey Corporate Communications
+1-412-434-3046 silvey@ppg.com
PPG Investor Contact: John Bruno Investor Relations
+1-412-434-3466 jbruno@ppg.com investor.ppg.com
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