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Rates, Charges Take Toll on PPG Q4

Friday, January 20, 2017

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Paint and coatings giant PPG reported a dip in net sales and a nosedive in net income for its fourth quarter 2016 due to unfavorable currency rates and charges related to its global restructuring.

The Pittsburgh-based multinational turned in fourth-quarter net sales of $3.5 billion, down more than 1 percent from the year-ago quarter, according to its announcement Thursday (Jan. 19).

residential paint
Ctoocheck, public domain, via Wikimedia Commons

Pittsburgh-based paints and coatings manufacturer PPG turned in fourth-quarter net sales of $3.5 billion.

Net income from continuing operations in the company’s fourth quarter was $77 million, down from $295 million in the fourth quarter of 2015.

Q4 Sales and Earnings

PPG reported fourth-quarter net sales in local currencies increased by more than 1 percent, aided by sales volume growth approaching 2 percent year-over-year.

The net impact from business portfolio actions contributed less than 1 percent to sales growth as acquisition-related sales increases modestly exceeded the absence of sales from the divested European fiber glass business, the company said.

These aggregate net sales gains were more than offset by unfavorable foreign currency translation, which reduced net sales by about 3 percent, or approximately $100 million.

PPG marine coatings
All following images: PPG

Protective and marine coatings sales volumes declined by a low-double-digit percentage year-over-year as growth in protective coatings was more than offset by further weakness in shipbuilding activity in Asia Pacific.

Fourth quarter 2016 reported net income from continuing operations was $77 million, or 29 cents per diluted share—down from $1.09 per diluted share in 2015.

Adjusted net income was $313 million, or $1.19 per diluted share, which excludes after-tax charge totaling $236 million, or 90 cents per diluted share.

These after-tax charges include: $146 million for business restructuring; $51 million for increases to legacy environmental reserves; $23 million for tax true-ups related to asbestos settlement funding; $5 million for a premium on the early retirement of debt; and $44 million for the loss on the sale of the European fiber glass business offset by a $33 million net gain on the disposals of ownership interests in business affiliates, according to PPG.

CEO Statement

“We delivered fourth quarter and full-year adjusted earnings-per-diluted-share growth despite modest and uneven global economic growth and the impact of significant unfavorable foreign currency translation,” said Michael H. McGarry, PPG chairman and CEO. “We achieved these milestones due to improving sales volumes, continued aggressive cost management and ongoing earnings-accretive focused cash deployment.

“For the fourth quarter, our adjusted earnings per diluted share increased by 3 percent, aided by coatings volume growth of nearly 2 percent and despite significant currency translation headwinds,” McGarry said.

“We achieved our highest volume growth in emerging regions, and by segment our Industrial Coatings grew global volumes by 5 percent with each business unit realizing similar growth rates. Global sales volumes declined less than 1 percent in Performance Coatings, as automotive refinish and architectural coatings growth was more than offset by lower protective and marine coatings demand stemming from further weakness in marine ship builds.”

Full-Year Highlights

For the full year of 2016, the company reported:

  • Net sales of $14.8 billion, consistent with the prior year, including an unfavorable foreign currency translation impact of nearly 3 percent, or approximately $400 million;
  • Net income from continuing operations of $564 million ($2.11 per diluted share) versus $1.34 billion in 2015;
  • Adjusted net income of $1.55 billion ($5.82 per diluted share) from continuing operations, up from $1.49 billion in 2015;
  • Adjusted-earnings-per-diluted-share increase of 7 percent; and
  • Sales volume growth of 1 percent versus the prior year.
PPG net sales 2016

For the full year of 2016, the company reported net sales of $14.8 billion.

“For the full year, in addition to 7 percent adjusted earnings-per-share growth, we completed a variety of strategic actions to strengthen our company,” said McGarry. “These actions included continued business portfolio optimization through several acquisitions and divestitures and further minimization of legacy risk as we fully funded the Pittsburgh Corning asbestos trust and completed the annuitization of a large portion of U.S. and Canadian pension obligations.

“Additionally, we continued to invest in new product development and increased our spending focused on improving our organic growth results.”

The company posted the following segment results.

Fourth-Quarter Segment Results

Performance Coatings net sales for the quarter were $1.98 billion, down 4 percent from the same period a year ago. This division comprises Protective and Marine, Aerospace coatings, Architectural coatings, and the Automotive Refinish business.

The Performance Coatings segment income for the fourth quarter 2016 was $239 million, down about 4 percent, versus the prior year, including unfavorable foreign currency translation of about $15 million driven primarily by the Mexican peso, the euro and the British pound, according to PPG.

Automotive refinish sales grew organically by a low-single-digit percentage, led by increased demand in Europe, PPG said. Aerospace sales in local currencies were consistent with the prior year, as industry demand growth remains modest.

Protective and marine coatings sales volumes declined by a low-double-digit percentage year-over-year as growth in protective coatings was more than offset by further weakness in shipbuilding activity in Asia Pacific, the company added.

Architectural coatings—Europe, Middle East and Africa sales volumes were in line with the prior year, with growth in Europe offset by lower demand in Africa. Architectural coatings—Americas and Asia Pacific sales volumes improved by a low-single-digit percentage versus the prior year.

Sales volume growth continued in the U.S. and Canada company-owned stores network but was offset by weakness in the independent dealer channel and national retail accounts, and Mexican growth continued despite strong growth in the prior-year comparable period, the company reported.

Net sales in Industrial Coatings rose five percent over 2015 in the quarter, to $1.44 billion, despite unfavorable foreign currency translation of more than 2 percent, or approximately 30 million.

Auto ecoat

Automotive original equipment manufacturer (OEM) coatings sales volumes grew by a mid-single-digit percentage versus the prior year, consistent with global industry growth rates.

Sales volumes grew by about 5 percent, led by strong emerging-region growth in all businesses. Acquisition-related sales added approximately 3 percent, or about $40 million.

Fourth-quarter Industrial Coatings segment income of $236 million was down $4 million versus the prior year.

Automotive original equipment manufacturer (OEM) coatings sales volumes grew by a mid-single-digit percentage versus the prior year, consistent with global industry growth rates. General industrial coatings and specialty coatings and materials aggregate sales volumes also grew by a mid-single-digit percentage, outpacing global industrial production growth for the fourth consecutive quarter.

Packaging coatings sales volumes grew by a mid- to high-single-digit percentage due to ongoing adoption of PPG’s new can coating technologies and despite strong growth in the prior-year comparable period, the company reported.

architectural coatings

Architectural coatings—Americas and Asia Pacific sales volumes improved by a low-single-digit percentage versus the prior year.

Glass segment net sales for the fourth quarter were $80 million, down 34 percent, year-over-year primarily due to the divestiture of the European fiber glass business. Sales volumes for the remaining North American fiber glass business were down approximately 3 percent due to the weaker demand for wind-energy-related products, partly offset by growth in the construction end-use market.

Segment income for the quarter was $12 million, up $1 million versus the prior-year period due to significant cost-management efforts and despite the absence of the divested fiber glass business and joint ventures.

Looking Ahead

“As we begin 2017, we are operating in an uncertain and evolving macroeconomic and regulatory environment,” said McGarry.

He notes the company is anticipating improved momentum in overall global economic growth with continuing but uneven growth in emerging regions.

“However, the timeline for this growth improvement remains uncertain, so we are aggressively managing all elements within our control and recently initiated a new business restructuring program targeting $125 million in annual savings,” said McGarry.

“Additionally, we will continue our growth investments and we have announced targeted selling-price increases to combat recent inflationary cost pressures. Finally, we anticipate deploying an additional $2.5 billion to $3.5 billion of cash on acquisitions and share repurchases in years 2017 and 2018 combined, as we remain focused on shareholder value creation,” he concluded.

   

Tagged categories: Business conditions; Business matters; Commercial / Architectural; Earnings reports; Finance; Industrial coatings; PPG

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