PPG reports second quarter 2020 financial results

• Net sales of $3.0 billion, 25% lower than the prior year and down about 22% in constant currencies

• Reported earnings per diluted share from continuing operations (EPS) of $0.42 and adjusted EPS of $0.99

• Net sales and EPS were significantly impacted by the effects of the COVID-19 pandemic

• Strong aggregate segment operating margins supported by rapid implementation of cost management actions that resulted in second quarter interim cost savings of about $170 million and more than $20 million of structural cost savings

• Strong liquidity; cash and short-term investments of approximately $2.3 billion at quarter-end; net debt reduced by about $300 million compared to prior quarter and operating cash flow close to prior year levels despite the pandemic

PITTSBURGH, July 17, 2020-- PPG (NYSE: PPG) today reported second quarter 2020 net sales of $3.0 billion, down approximately 25% versus the prior year. Selling prices increased by nearly 2%. Sales volumes were down 24% versus the prior year. The lower sales volumes reflect the negative economic impacts of the COVID-19 pandemic. Unfavorable foreign currency translation impacted net sales by more than 3%, or about $135 million, and acquisition-related sales, net of divestitures, added less than 1% to sales growth.

Second quarter 2020 reported net income from continuing operations was $99 million, or $0.42 per diluted share, and adjusted net income was $235 million, or $0.99 per diluted share. Adjusted net income excludes business restructuring charges of $128 million after-tax, or $0.54 per diluted share, and certain other adjustments detailed in the reconciliation below. Second quarter 2019 reported net income from continuing operations was $270 million, or $1.13 per diluted share, and adjusted net income was $441 million, or $1.85 per diluted share. For the second quarter 2020, the reported and adjusted effective tax rates were about 23% and 25%, respectively. The adjusted effective rate was higher than expected due to the mix of earnings by country. The second quarter 2019 reported and adjusted effective tax rates were approximately 24%. Reconciliations of the reported to adjusted figures are included below.

“We delivered solid operating results in the second quarter, especially considering the significant declines in economic activity in most of the world due to the COVID-19 pandemic. The strongest performance came from our global architectural coatings businesses, which was driven by increased do-it-yourself (DIY) demand of PPG paint products in all major regions,” said Michael H. McGarry, PPG chairman and chief executive officer. “During the quarter, several of our businesses in China, including automotive original equipment manufacturer (OEM) coatings, general industrial coatings, and protective and marine coatings, achieved higher sales volumes year-over-year supported by a recovery in Chinese economic activity. Year-over-year demand was lower across most businesses in other major global regions, but our sequential monthly sales volumes improved in each region during the quarter.

“Our quick and decisive actions at the outset of the pandemic helped to mitigate the earnings impact from the lower demand. Our aggregate segment margins were about 13%, which is a significant improvement versus the depths of the prior recession in 2008/2009 when we experienced similar volume declines, and is measurable proof of the structural cost savings that we have delivered over the past several years. In the quarter, we delivered about $170 million of cost savings from various interim initiatives and more than $20 million of incremental structural savings from business restructuring programs. In June, we initiated a new restructuring program targeting up to $170 million of annualized structural cost savings. In addition, aided by strong working capital management, during the quarter we generated nearly $500 million of cash from operations, similar to second quarter 2019 levels. We also continued our legacy of rewarding shareholders with a 6% quarterly dividend increase, reflecting the resiliency of our business model and capability to generate strong and consistent cash flow.

“As the pandemic continues, our focus remains on the protection of our employees and providing excellent support to our customers with the essential products and services they need to resume and ramp-up their operations,” McGarry added. “Looking ahead, we expect overall economic activity to continue to recover, although at a varied pace across end-use markets and regions given the uncertainty around the ongoing effects of the pandemic. We anticipate positive overall global architectural coatings demand trends to continue, with some moderation from the elevated DIY demand experienced in the second quarter. We expect continued, solid recovery patterns in automotive OEM and general industrial coatings demand in the U.S. and Europe, but still below 2019 levels. Automotive refinish and aerospace coatings sales are expected to be lower until travel and vehicle traffic density return toward more normal levels. Discretionary cost management will continue, particularly in those businesses with longer recovery timelines. We have continued to improve our overall liquidity and will prudently manage cash and our balance sheet.

“Finally, I am very proud and pleased with how our global team is managing through this challenging time, and we are on the path to emerge from this crisis as an even stronger company,” McGarry concluded.

Second Quarter 2020 Reportable Segment Financial Results

• Performance Coatings segment second quarter net sales were about $2.1 billion, down approximately $360 million, or 15%, versus the prior year. Net sales in constant currencies decreased by about 11%. Selling prices increased by nearly 3%, and acquisition-related sales added nearly 1%, or about $20 million, primarily from the Dexmet, Texstars and ICR acquisitions. These gains were more than offset by lower sales volumes of about 15%, or about $360 million, primarily related to the COVID-19 pandemic. Finally, sales were impacted by unfavorable foreign currency translation of about 4%, or about $85 million.

Aerospace coatings sales volumes were down about 30% impacted by lower commercial OEM and after-market activity, partially offset by consistent military demand. Net sales for automotive refinish coatings improved sequentially each month but declined about 35% for the quarter, as higher selling prices were more than offset by lower volumes reflecting the sharp decline in global miles driven and traffic density. Year-over-year net sales, excluding the impact of currency and acquisitions (organic sales), in the architectural coatings – Americas and Asia-Pacific were down slightly, with differences by channel and region. DIY architectural coatings sales volumes were sharply higher in all major regions. Organic sales in the trade/professional channel were mixed, including the unfavorable impact of retail store shutdowns in the U.S., Canada and Mexico, lower residential interior paint activity and decreased overall commercial painting demand. Architectural coatings – Europe, Middle East and Africa (EMEA) organic sales decreased by a low-single-digit percentage, as the impact from mandated retail store closures in the first half of the quarter was nearly offset by very strong and broad-based growth in June as countries re-opened their economies. Sales volumes in protective and marine coatings were down a mid-single-digit percentage and were lower in all major regions except Asia-Pacific due to growth in China.

Segment income for the second quarter was $362 million, down about $65 million, or 15%, year-over-year, including unfavorable foreign currency translation impacts of approximately $10 million. Segment income was impacted by lower sales volumes related to the pandemic, partially offset by cost-mitigation efforts, higher selling prices, and restructuring initiatives. Segment margins matched the prior year second quarter despite sales volumes declining 15%.

• Industrial Coatings segment second quarter net sales were about $950 million, down nearly $650 million, or about 40%, versus the prior-year period. Sales volumes declined by 38%, as a result of the sharp demand decline stemming from the COVID-19 pandemic. Selling prices were modestly higher in the quarter. Unfavorable foreign currency translation lowered net sales by about $50 million, or 3%, versus the prior year.

Automotive OEM coatings sales volumes decreased by nearly 50% year-over-year due to the significant curtailment in global automotive industry production, especially in the first six weeks of the quarter when production declined about 80% in the U.S. and Europe. Global auto production improved during the quarter with China production nearly matching the prior year’s quarterly level, and North American and European production solidly improving in June. Sales volumes for the industrial coatings business were down about 35% in the second quarter due to very weak demand trends in April and May, but also finished with a strong sequential monthly improvement in June. Packaging coatings organic sales increased a low-single-digit percentage year-over-year, as strong U.S. demand was offset by softer Asian demand, including certain customer facility shutdowns due to the pandemic.

Segment income for the second quarter was $34 million, down about $200 million, or approximately 85%, year-over-year, including an unfavorable foreign currency translation impact of $7 million. Segment income was primarily impacted by lower sales volumes due to customer shutdowns related to the pandemic, partially offset by aggressive cost-mitigation actions, restructuring cost savings, and modestly higher selling prices.

The company ended the second quarter with net debt of $4.0 billion, approximately $475 million lower year-over-year. This includes gross debt of $6.3 billion, up $800 million year-over-year, and nearly $2.3 billion of cash and short-term investments, up $1.3 billion versus the prior-year quarter. The company’s $2.2 billion revolving credit facility is currently undrawn.

In addition, today the company reported:

• Third quarter aggregate sales volumes are anticipated to be down 8% to 15%, differing by business and region. The wide range is due to ongoing uncertainty over the demand impacts of the pandemic in various major global regions.

• Total restructuring savings are expected to be $60 to $70 million in the second half of 2020, including benefits from the program approved during the second quarter.

• Corporate expenses were about $50 million in the second quarter and are expected to be $50 to $55 million in the third quarter.

• Net interest expense is expected to be $32 to $36 million in the third quarter, including the higher year-over-year debt balance.

• The company’s global ongoing effective tax rate is expected to be in the range of 23% to 25% for the third quarter of 2020

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Notes for editors

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