PPG Reports Sales Increase in 2021 Q3
Global coatings company PPG (Pittsburgh) released its third-quarter 2021 earnings report on Wednesday (Oct. 20), announcing record net sales of $4.4 billion for the quarter, or 19% higher than Q3 in 2020.
However, third-quarter 2021 reported net income from continuing operations was $344 million, down from $442 million last year, and adjusted net income from continuing operations was $406 million, down from $481 million last year.
“As we communicated in early September, supply-chain disruptions worsened during the quarter as various commodity and component shortages restricted both our manufacturing output and that of certain customers,” said Michael H. McGarry, PPG Chairman and Chief Executive Officer.
“While overall demand remained robust during the quarter, these increased disruptions prevented us from completely fulfilling our strong order books. Throughout the quarter, we continued to prioritize selling price increases and we delivered 6 percent price realization for the quarter, led by the Industrial Coatings reporting segment.”
“Strategically, the integration of our five recent acquisitions is well underway, with initial synergy capture meeting expectations. I am pleased to report that our two larger acquisitions—Ennis-Flint and Tikkurila—delivered solid top-line performance in the quarter, and would have performed even better, aside from the sourcing interruptions.”
The Performance Coatings segment third-quarter net sales were about $2.8 billion, roughly 23% higher than the prior year.
Segment income for the third quarter was $408 million, down about $18 million, or about 4%, year-over-year. PPG said that segment income was lowered this year due to raw material cost inflation and lower sales volumes, partially offset by higher selling prices, acquisition-related earnings and restructuring cost savings.
Within that segment, aerospace coatings sales volumes increased by about 20% in the third-quarter, while net sales for automotive refinish coatings improved in the U.S., but remained subdued in the EMEA region.
Year-over-year sales in architectural coatings Americas and Asia Pacific, EMEA and traffic solutions businesses were impacted due to raw material availability, despite an ongoing demand of do-it-yourself products. PPG reports sales were comparable to the third quarter of 2019.
“Several of our businesses, including automotive refinish, protective and marine and packaging coatings delivered above-market volume performance despite the procurement challenges,” McGarry said. “In addition, demand recovery continued in our aerospace coatings business, primarily in the aftermarket.”
The Industrial Coatings segment third-quarter net sales were $1.6 billion, up 13% from the prior-year period. Segment income was about $140 million, down nearly $113 million, or approximately 45%, year-over-year.
Within the segment, automotive OEM coatings sales volumes were down a high-teen percentage, but remained above automotive industry production rates, according to PPG.
PPG reports that all other businesses in this segment produced higher year-over-year sales, including strong above-market performance in packaging coatings. Segment income was also lower due to raw material cost inflation.
The company ended the third quarter with net debt of $5.5 billion, approximately $400 million lower than the second quarter. The company’s corporate expenses were $45 million in the third quarter, lower than anticipated due to a reduction in incentive compensation expenses.
“Looking ahead, while economic demand remains strong on an aggregate basis, we anticipate ongoing supply-chain disruptions to persist throughout the fourth quarter, with potential further impacts from the recent industrial production curtailments in China,” McGarry said. “We expect these disruptions to ease slightly in overall quantity and magnitude as the quarter progresses.
“We will continue to prioritize selling price increases and expect realization to be sequentially higher in the fourth quarter. The pace of our price realization continues to be well ahead of the most recent raw material inflation cycle in 2017-2018, which should allow us to fully offset aggregate raw material cost inflation in early 2022.
“In addition, the anticipated recovery of the automotive original equipment manufacturer (OEM), aerospace, and automotive refinish coatings businesses” McGarry said, “which collectively accounted for about 40% of our pre-pandemic sales, will be a significant catalyst for growth in 2022. As always, we will continue to aggressively manage all aspects of our cost structure.
“Finally, I am proud of our employees, who are demonstrating The PPG Way every day in strong collaboration with our customers and suppliers, and I am more confident than ever that we will come through these current macro challenges as a stronger company.”