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PPG Reports Sales Decline in Q1, 2020

Wednesday, April 29, 2020

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Global coatings supplier PPG Industries (Pittsburgh) reported in a press release on Monday (April 27), a 5% decrease in constant currencies in first-quarter net sales, compared to the prior year’s first quarter.

Net sales also decreased approximately 7%, which has been pointed to unfavorable impacts from the effects of the COVID-19 pandemic.

First-Quarter Performance

Net sales were reportedly roughly $3.4 billion, a 7% decrease from the prior year, and net sales in constant currencies also decreased nearly 5% year over year, although selling prices were reported to increase by more than 1%. Sales volumes were down by 8%, in aggregate, including an estimated impact of the COVID-19 pandemic of $225 million, or about 6%.

© iStock.com / jfarleyphoto

Global coatings supplier PPG Industries (Pittsburgh) reported in a press release on Monday (April 27), a 5% decrease in constant currencies in first-quarter net sales, compared to the prior year’s first quarter.

Foreign currency translation impacted net sales by about $75 million, or more than 2%. Sales related to acquisitions, net of divestitures, contributed nearly 2% to sales growth.

For the first quarter, reported net income from continuing operations was $243 million, or $1.02 per diluted share, down from 2019’s first-quarter $312 million, with adjusted net income for the same business segment totaling $330 million, or $1.38 per diluted share.

“Our first quarter results reflect a sudden and wide-ranging deterioration in global demand during the month of March and the impacts of the economic shutdown in China during February. As the COVID-19 pandemic spread, we prioritized and remained focused on protecting our people, customers and all of our stakeholders,” said Michael H. McGarry, PPG Chairman and Chief Executive Officer.

“From a financial perspective, our businesses through early March, with the exception of those in China, were mostly performing at or above the financial targets we had set at the outset of the year, and we were pacing toward low-double-digit percentage EPS growth. We had solid performance in our global architectural and packaging coatings businesses and continued growth in the aerospace coatings business.

“In the last two weeks of March, however, many of our larger original equipment manufacturer (OEM) customers were forced to shut down? a number of architectural paint stores in certain countries were mandated to close? and miles driven and flown throughout the world fell sharply as many countries imposed stay-at-home mandates.”

Cash and short-term investments from operations amounted to $1.9 billion for fiscal 2020, which was supplemented by an additional $700 million from recent April short-term borrowing.

Performance Coatings

First-quarter sales for PPG’s Performance Coatings segment totaled about $2 billion, down nearly 5% or $100 million, compared to 2019. Sales in constant currencies also saw a roughly 3% decrease, although sale prices increased by more than 2%. Acquisition-related sales added approximately $20 million, which includes acquiring industrial manufacturers Dexmet, Texstars and ICR acquisitions. Unfavorable foreign currency translation revealed lower sales volumes of %2, or more than $40 million.

The impacts from the COVID-19 pandemic lowered sales volumes by an estimated $90 million.

Thanks to higher volumes in the first two months of the quarter—although these volumes declined in March due to customer production shutdowns and softening commercial after-market demand—net sales values for PPG’s aerospace coatings decreased by a low-single-digit percentage. Net sales for automotive refinish coatings were down by a low-teen-percentage, which was attributed to higher selling prices and acquisition-related sales that were more than offset by lower sales volumes, reflecting a sharp decline in global miles driven.

Aggregate protective and marine coatings sales volumes were also down by a low-single-digit percentage. Organic sales for the Americas and Asia-Pacific segment of architectural coatings saw a decrease in year-over-year net sales for the quarter, and organic sales volumes for architectural coatings in the EMEA region decreased by a low-single-digit percentage, as positive trends in the first two months of the quarter were more than offset by lower demand in southern Europe where various countries mandated the closures of retail paint stores in March.

© iStock.com / jetcityimage

The impacts from the COVID-19 pandemic lowered sales volumes by an estimated $90 million.

Segment income for the first quarter was $272 million, a $25 million decrease over 2019’s first quarter. Lower sales volumes related to the pandemic and unfavorable foreign currency exchange translation partially offset by higher selling prices, execution of cost-mitigation efforts and restructuring initiatives were all named contributors to the decrease.

Industrial Coatings

Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.4 billion, down $145 million, or nearly 10%. Lower sales volumes were offset by modestly higher selling prices. Foreign currency translation decreased sales by about $35 million, or about 2%, in comparison with 2019’s first quarter.

The impact of the pandemic lowered segment sales volumes by an estimated $135 million.

Automotive original equipment manufacturer coatings sales volumes decreased by a high-teen-percentage consistent with the significant downturn in global automotive industry production rates. Industrial coatings and specialty coatings and materials sales volumes were down by 11%.

Segment income was $181 million, down $37 million, or about 17%, year-over-year, including unfavorable foreign currency translation impacts of $5 million.

Moving Forward

According to the press release, PPG anticipates that second quarter aggregate sales volumes will be down 30% to 35%, differing by business and region, and presuming that demand begins to improve in June. Due to this decrease in sales, the company also reports that it has withdrawn its previously communicated full year sales and earnings guidance.

“We have taken immediate and broad steps to adapt to the current business climate, including decisive cost actions and an increased focus on cash generation and liquidity. These include announced salary reductions for senior leaders, shutdowns of some manufacturing and distribution operations, temporary employee furloughs at the most severely demand-impacted businesses, reduced spending across all businesses and functions, and deferred capital expenditures. In addition, we continued to execute our previously announced restructuring programs, achieving about $20 million of savings in the first quarter,” said McGarry.

“Looking ahead, we expect customer demand levels to remain severely impacted, with significant declines continuing in the automotive OEM, automotive refinish and aerospace coatings businesses. In certain other businesses, including packaging coatings, do-it-yourself (DIY) architectural coatings, long-cycle protective coatings and military products, demand has only been modestly impacted by crisis. Also, our operations in China are now fully operational, and regional economic activity is returning toward pre-crisis levels. We remain focused on prudently managing our cash and balance sheet.”

   

Tagged categories: Asia Pacific; Business management; Business matters; Business operations; Earnings reports; EMEA (Europe, Middle East and Africa); Finance; Good Technical Practice; Latin America; North America; PPG; Project Management; Z-Continents

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