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PPG Reports Record Q1 Performance

Friday, April 22, 2016

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Crediting six acquisitions completed during 2015, Michael H. McGarry, PPG president and chief executive officer, announced improved financial results for the company’s two coatings segments in the first quarter of 2016.

The Pittsburgh-based paint and coatings manufacturer reported net sales of $3.7 billion in Q1, consistent with the previous year, and net sales in local currencies growing 4 percent year-over-year, led by broadening European volume growth, the company reported Thursday (April 21).

PPG Q12016 infographic
Photos: PPG, unless otherwise noted

“We delivered record first quarter adjusted earnings per diluted share, which represented an 11 percent year-over-year increase, marking our 13th consecutive quarter with a double-digit percentage increase,” PPG president and CEO Michael H. McGarry said.

Acquisition sales contributed 3 percent and sale volume growth added 1 percent, it added.

Unfavorable foreign currency translation impacted net sales by almost 4 percent, or $140 million, the company noted.

Despite the unfavorable exchange rate, “We delivered record first quarter adjusted earnings per diluted share, which represented an 11 percent year-over-year increase, marking our 13th consecutive quarter with a double-digit percentage increase,” McGarry said.

PPG also reported net income of $347 million, or $1.29 per diluted share, up from $321 million and $1.16 per diluted share in 2015. Adjusted net income for the quarter grew from $327 million in 2015 to $351 million, or $1.31 per diluted share, in Q1 2016.

The adjusted net income excludes after-tax charges totaling $4 million, or 2 cents per diluted share, for transaction-related costs and a non-recurring charge, the company said.

The adjusted effective tax rate for the quarter was reported to be 25 percent.

Q1 2016 Sales Volume Trends

McGarry cited the strong earnings leverage achieved on sales volume gains along with acquisition-related income and continued cost discipline as contributing to its record Q1 results. Again, these improvements were achieved despite ongoing, but moderating, unfavorable foreign currency translation, he added.

Sales volumes grew 1 percent year-over-year, which reflected a continuation of “modest” global demand trends, according to McGarry.

“Our growth accelerated and broadened in Europe, where volumes have improved for five consecutive quarters,” he explained. “U.S. and Canada sales volumes were flat, as we continued to experience variations by end-use market and country.”

McGarry noted that year-over-year growth in emerging regions remained positive, despite the strong growth reported last year in China and Mexico, and reflected uneven end-use market demand.

“Sales volume increases were comparable in both of our coatings segments, led by the packaging, automotive refinish and architectural coatings EMEA businesses,” McGarry said. “Also, the six acquisitions we completed during 2015 contributed to the improved financial results for our two coatings segments.”

The acquisitions included Revocoat (April), Consorcio Lationamericano (June), Cuming Microwave (July), IVC (September), Chemfil Canada (August) and Le Joint Francais (October).

© / Davel5957

McGarry cited the strong earnings leverage achieved on sales volume gains along with acquisition-related income and continued cost discipline as contributing to the company's record Q1 results.

Reduced production capacity resulting from a scheduled facility outage was cited as the reason for the sales volume decline in the glass segment.

Performance Coatings

PPG posted net sales of $2.04 billion in its Performance Coatings segment, down less than 1 percent compared to Q1 2015. It reported a 3 percent year-over-year increase in sales in local currencies, largely resulting from acquisition-related sales of about $25 million, and higher sales volumes of about 1 percent.

Unfavorable foreign currency translation reduced net sales by about $85 million, roughly 4 percent.

Sales volume growth accelerated in architectural coatings – EMEA (Europe, Middle East, and Africa), advancing by a low single-digit percentage, as growth rates increased in several Western European countries, the company noted.

Organic sales for Architectural coatings – Americas and Asia Pacific also reflected modest growth, as increases in Mexico and the U.S. were partially offset by lower demand in certain Canadian markets and persistent weakness in South America.

Despite weakness in the marine end-use market, protective and marine coatings sales volumes remained consistent with the prior year because of the increases seen in protective coatings.

Higher end-use customer demand helped organic sales continue to expand in automotive refinish coatings, especially in the U.S. and Asia.

Aerospace sales volumes showed a low single-digit percentage drop, feeling the effects of low commercial demand and customer inventory management; this area declined by a low single-digit percentage.

Income for this division was up more than 6 percent in Q1, reaching $279 million.

Cost management efforts, business restructuring and acquisition-related income were cited as the key drivers behind this segment’s income improvement, having more than offset approximately $15 million of incremental growth-related spending at major national accounts in architectural coatings U.S. and Canada, PPG said.

These costs, related to new product launches and other growth initiatives, were consistent with expectations and are not expected to recur in future quarters.

PPG Segments Q1-2016

The six acquisitions PPG completed during 2015 contributed to the improved financial results for its two coatings segments, according to McGarry.

Foreign currency translation reduced Performance Coatings income by about $10 million.

Industrial Coatings

Q1 net sales were up about 2 percent, or $32 million, in the Industrial Coatings segment. Acquisition-related sales of approximately $85 million gave a boost to sales in local currencies, which grew more than 6 percent; sales volume growth contributed another 1 percent.

Unfavorable foreign currency translation reduced net sales by almost 4 percent, or about $50 million.

Automotive original equipment manufacturer (OEM) coatings sales volumes were in line with the prior year and in comparison to robust prior-year growth that included double-digit percentage gains in Asia, the company said. This activity reflected global automotive industry production that advanced slightly year-over-year.

Industrial coatings and specialty coatings and materials saw modest year-over-year sales volume growth, an improvement versus recent quarters, led by expansion in Europe and certain end-use market improvements in the U.S. and Canada.

Packaging coatings continued to experience above-industry growth rates, as sales volumes increased by a mid-to-high single-digit percentage in each region, driven by new-technology-related customer conversions.

Industrial Coatings segment income for the quarter grew about 9 percent year-over-year, reaching $265 million, as a result of lower costs, which included manufacturing cost efficiencies, increased benefits from business restructuring and acquisition-related income.

Foreign currency translation negatively impacted segment income by approximately $5 million.


Net sales for the Glass segment net sales $261 million for the first quarter, down 2 percent compared to the same time last year. This segment felt an impact from lower sales volumes, unfavorable foreign currency translation and lower sales stemming from the sale of a flat glass manufacturing facility, although partially offset by improved selling prices.

While the flat glass industry demand remained solid, PPG said its sales volumes declined mainly because of a scheduled facility outage.

Fiber glass sales volumes showed a modest decline, as European growth was offset by lower U.S. demand.

Income for the segment dropped $2 million to $28 million compared to the prior year. This was largely due to $8 million in repair and facility outage expenses, lower sales volumes and lower equity earnings from Asian joint ventures, partially offset by improved selling prices and strong cost management, the company said.

Current Outlook

“Looking ahead, we expect economic growth to remain measured globally,” McGarry said.

With further expansion of the European economic recovery anticipated, PPG said the resulting higher demand should allow for continued capitalization on its cost-base reduction efforts in that region.

PPG unveiling an update to its corporate brand in March; the new brand is said to reflect the transformation that has occurred in the company’s identity and portfolio since its inception in 1883. Enhancing its consumer branding strategies is part of the company's outlook for the year ahead.

The company also expects to see year-over-year incremental improvements in regional demand in the U.S. and Canada across several end-use markets.

It anticipates continuing mixed growth rates in emerging regions, with higher consumer spending supporting increased Asian demand and PPG-specific above-market performance in Mexico, tempered by sustained economic weakness in South America, according to McGarry.

“We are accelerating our efforts to develop and commercialize new customer-driven technologies, and we have enhanced our consumer branding strategies,” McGarry noted. “Both of these important initiatives are focused on driving higher organic growth.”

Additionally, he said, PPG is maintaining a strong cost focus, including finalizing its restructuring program, announced in April 2015.

Recent exchange rates indicate moderation in the effects of unfavorable foreign currency translation on sales and income as well.

“Finally, we have a strong cash position and balance sheet, which we intend to continue deploying on earnings-accretive and shareholder-focused actions,” McGarry concluded.


Tagged categories: Aerospace; Architectural coatings; Asia Pacific; Automotive coatings; Business matters; Coating Materials; Coatings manufacturers; Earnings reports; EMEA (Europe, Middle East and Africa); Finance; Industry News; Latin America; Marine Coatings; North America; PPG; Protective Coatings

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