PPG Reports Sales Increase for 2022 Q1
Global coatings supplier PPG (Pittsburgh) reported a record first quarter net sales of $4.3 billion, an 11% increase from the year prior, in a financial results press release issued on Thursday (April 21).
Organic sales growth also grew by about 7%, which was led by higher selling prices.
First Quarter Performance
Net sales were reportedly roughly $4.31 billion, an increase of 11% from the prior year. This was largely attributed to increased selling prices, which were reported to increase by 10%. However, sales volumes were down by approximately 3%, year-over-year.
Foreign currency translation impacted net sales unfavorably as well, decreasing by 3%. PPG also noted that the company paid $290 million (primarily non-cash) for charges related to operations in Russia. Additional issues pointed to a 25% increase in raw material costs and elevated energy and transportation costs as well.
Sales related to acquisitions, net of divestitures, contributed 7% to sales growth.
For the first quarter, reported net income from continuing operations was $18 million, or $0.08 per diluted share, down from 2021’s first-quarter $378 million, with adjusted net income for the same business segment totaling $327 million, or $1.37 per diluted share.
“We delivered record sales during the quarter despite ongoing supply chain disruptions along with the initial impacts of geopolitical issues in Europe and increasing COVID-19 restrictions in China. Our organic sales growth of 7% was driven by continued selling price realization and above-market sales volume performance in several of our end-use markets, most notably in automotive refinish and PPG-Comex architectural coatings,” said Michael H. McGarry, PPG Chairman and Chief Executive Officer.
“On a two-year stacked basis, our selling prices are up about 12% over the first quarter 2020 as we continue to manage through persistent and broad inflation. Sales also benefited from our recent acquisitions as Tikkurila and traffic solutions both delivered strong performances.
“In addition to further selling price capture, adjusted earnings exceeded our January guidance as we delivered excellent earnings leverage on higher-than-expected sales volumes. The leverage benefits were aided by sequential quarterly improvements in manufacturing performance, including the benefit of more consistent raw material availability. We once again finished the quarter with a much larger than normal order backlog, totaling about $180 million, primarily in automotive refinish and aerospace coatings, and we expect further volume growth in these businesses in the coming quarters.”
The company had cash and short-term investments totaling approximately $1 billion at the end of the quarter and net debt of $6.1 billion, up by about $600 million from the end of the fourth quarter 2021. Working capital was noted to increase, reflecting seasonal trends and raw material inflation.
First-quarter sales for PPG’s Performance Coatings segment totaled about $2.57 billion, up approximately $251 million, or about 11%, compared to 2021. The improvement was led by selling price increases of about 8% and a continued strong demand in most end-use markets. Acquisition-related sales added 7%, mostly represented by the recently acquired Tikkurila business.
PPG’s Architectural Coatings segment income witnessed a decrease of about 17% in net sales year-over-year, reporting $319 million as compared to $386 million in 2021. According to PPG, despite some of the strides made throughout the first quarter, raw material availability continued to constrain sales in many businesses, with the largest impacts in architectural coatings Americas and Asia Pacific, traffic solutions and automotive refinish.
Sales volumes in the U.S. architectural coatings business benefited modestly from the launch of PPG’s expanded relationship with The Home Depot in the professional paint channel, however, the inventory load-in was constrained due to raw material availability.
Automotive refinish net sales grew by a high-single-digit percentage with higher selling prices and sales volumes that continued to outpace industry growth. Aerospace sales volumes were also up, reporting a mid-teen-percentage increase compared to first quarter 2021 levels.
Traffic solutions delivered strong organic sales growth of about 25% compared to the prior year.
PPG attributes the lower segment income to raw material, logistics, and energy cost inflation, along with increased manufacturing costs and lower sales volumes, partially offset by higher selling prices coupled with restructuring cost savings.
Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.72 billion, up about $176 million, or nearly 11%. The growth reflected selling price increases across all businesses and acquisition-related sales, partially offset by lower sales volumes in comparison to strong, pandemic-related volume recovery in the prior year.
Most businesses were also impacted by lower economic activity in China due to the Winter Olympics and growing COVID-19 restrictions later in the quarter.
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Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.72 billion, up about $176 million, or nearly 11%.
Selling prices were also higher compared to the first quarter of 2021 (up 12%), including in the automotive OEM coatings business. However, PPG reported that sales volumes for the segment witnessed a 5% decrease, year-over-year.
Foreign currency translation decreased net sales by about 3%, in comparison to 2021, segment net sales volumes was also down, reporting 8.1% as compared to the 15.7% reported during the first quarter of 2021. Acquisition-related sales were up 7%, with Wörwag, Tikkurila and Cetelon representing the improvement.
Industrial coatings organic sales were up a high-single-digit percentage driven by strong selling price realization and solid sales volumes growth in the Americas, partially offset by lower demand in China due to pandemic-related restrictions.
Segment income was $140 million, down roughly $105 million, or approximately 43%, year-over-year. This was reportedly negatively affected by raw material cost inflation, elevated operating costs due to intermittent manufacturing outages early in the quarter and lower sales volumes. These were partially offset by higher selling prices, restructuring cost savings, and acquisition-related earnings.
According to the press release, PPG anticipates that second quarter aggregate sequential net sales will down a low-to-mid-single-digit percentage on a year-over-year basis. Corporate expenses are expected to lad between $60-$70 million, while net interest expenses are expected to be $26-$30 million.
The company reports that it is basing its projections 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.
“Looking ahead, aggregate underlying demand for PPG products is expected to remain solid, including continued pandemic-related recovery in certain end-use markets. While supply disruptions are expected to persist, we anticipate further sequential raw material availability improvements driven by increased supplier manufacturing capabilities and labor availability in the U.S., along with lower European demand,” said McGarry.
“Given higher global energy prices, we are implementing further selling price increases in all businesses, and our commercial processes are enabling closer to real-time pricing relative to inflation. We are also developing further cost mitigation actions in the event of broader economic slowdowns. The continuing crisis in Europe and pandemic-related restrictions in China have increased the level of near-term economic uncertainty, as a result our financial guidance for the second quarter considers a wider range of potential earnings outcomes.
“I remain optimistic about the number of organic growth opportunities that we are pursuing, increased sales volumes associated with return to normal historical inventory levels in most of our end-use markets and the expected recovery in automotive original equipment manufacturer (OEM) and aerospace coatings, where we have leading global positions.”