PPG Reports Q3 Financial Results; Raises Full-year EPS Guidance

PPG (NYSE:PPG) today reported financial results for the third quarter 2023.

Record third quarter net sales of $4.6 billion
Net sales up 4% year over year (YOY) aided by resilient business portfolio
Quarterly earnings per diluted share (EPS) of $1.79 and record adjusted EPS of $2.07
Continued progress on margin recovery; segment margin up 260 basis points YOY
Year-to-date operating cash flow of over $1.5 billion; up more than $1.1 billion YOY

Third Quarter Consolidated Results

$ in millions, except EPS	3Q 2023	3Q 2022	Y-O-Y change
Net sales	$4,644	$4,468	+4%
Net income	$426	$329	+29%
Adjusted net income^(a)	$493	$393	+25%
EPS	$1.79	$1.39	+29%
Adjusted EPS^(a)	$2.07	$1.66	+25%
(a) Reconciliations of reported to adjusted figures are included below

Chairman and CEO Comments

Tim Knavish, PPG chairman and chief executive officer, commented on the quarter:

I am proud of the PPG team for delivering outstanding results in a challenging global demand environment, including a slower-than-expected recovery in China. We achieved record third quarter net sales and adjusted earnings per share aided by the breadth and resiliency of our business portfolio. This included strong operating performance with both of our operating segments delivering at least 25% earnings growth, led by our aerospace, automotive original equipment manufacturer (OEM), automotive refinish coatings and PPG Comex businesses, all of which also produced record sales for a third quarter.

Aggregate segment margin increased 260 basis points over the same quarter last year, marking the fourth consecutive quarter of year-over-year margin improvement. Additionally, our earnings growth and improved working capital have contributed to record operating cash flow of more than $1.5 billion year to date.

Looking ahead, while demand in Europe and China are at or nearing trough levels and will likely present growth opportunities in 2024, we anticipate soft global macroeconomic conditions will persist in the fourth quarter. Overall, we remain confident that our technology-advantaged products and strong brands will drive our outperformance versus the markets we supply, including continued growth in our aerospace and PPG Comex businesses. In addition, supply conditions have returned to historical norms and raw material availability remains ample.

Finally, we remain focused on executing our enterprise growth strategy, including managing our business to meet our organic growth objectives through purposeful investments in innovation, assets and our people. We continue the unwavering support to our customers by providing superior services and products that enhance their productivity and sustainability. Driven by the contributions of our more than 50,000 global employees, we aim to maintain our strong momentum and accelerate growth and value creation for the benefit of all stakeholders.

Third Quarter 2023 Reportable Segment Financial Results

Performance Coatings segment

$ in millions	3Q 2023	3Q 2022	Y-O-Y change
Net sales	$2,880	$2,705	+6%
Segment income	$452	$362	+25%
Segment income %	15.7%	13.4%
Sales volumes			0%
Selling prices			+3%
Foreign currency translation			+3%

Performance Coatings net sales increased, led by higher selling prices and favorable foreign currency translation.

Demand for PPG’s technology-advantaged aerospace products remained strong as the business delivered mid-teen percentage organic sales growth year over year. In the architectural coatings Americas and Asia-Pacific business, PPG Comex delivered record sales for the 13^th consecutive quarter as it continues to benefit from a growing Mexican economy and its excellent brand. As anticipated, overall organic sales in the U.S. architectural coatings business decreased a low single-digit percentage, as continued growth in the professional contractor channel was offset by soft do-it-yourself demand. Demand for architectural coatings in the EMEA region is nearing trough levels as sales volumes were essentially flat year over year. Automotive refinish coatings organic sales increased by a low single-digit percentage as strong year-over-year growth in Europe, Asia and Latin America was partially offset by softer demand in the U.S. reflecting uneven distributor ordering patterns.

Segment income increased by 25% versus the prior year, primarily due to higher selling prices and moderating input costs which are trending down from historically high levels. Segment operating margins improved by 230 basis points year over year.

Industrial Coatings segment

$ in millions	3Q 2023	3Q 2022	Y-O-Y change
Net sales	$1,764	$1,763	0%
Segment income	$246	$192	+28%
Segment income %	13.9%	10.9%
Sales volumes			-4%
Selling prices			+2%
Foreign currency translation			+1%
Net acquisitions and divestitures			+1%

Industrial Coatings net sales were flat compared to the third quarter 2022 as lower sales volumes were offset by higher selling prices, a net benefit from acquisitions and divestitures, and favorable foreign currency translation.

Automotive OEM coatings organic sales increased by a low single-digit percentage with higher selling prices in all regions and higher aggregate volumes. Growth in sales volumes was led by the company’s strong positions in China and Mexico. Offsetting this sales volume growth was lower global industrial activity which drove softer sales activity in all other businesses in the operating segment. Industrial coatings organic sales declined by a mid-single-digit percentage as positive selling price realization was more than offset by lower sales volumes in most sub-segments. As expected, packaging coatings organic sales were lower by a high single-digit percentage driven by softer demand in each major region and most product categories.

Segment income was higher than the prior year by $54 million, or 28%, primarily due to higher selling prices and raw material costs moderating from historically high levels, partially offset by lower sales volumes. Segment margins improved by 300 basis points compared to the third quarter 2022.

Additional Financial Information

The reported and adjusted effective tax rates were 21.7% and 19.5%, respectively, in the third quarter and were lower than expected primarily due to nonrecurring favorable discrete tax items. The lower tax rate increased adjusted quarterly earnings per diluted share by $0.10 compared to the financial guidance provided by the company in July.
At quarter end, the company had cash and short-term investments totaling nearly $1.3 billion. Net debt was $4.9 billion, which is about $800 million lower compared to the prior-year third quarter.
Corporate expenses were about $90 million in the third quarter, in-line with the company’s expectations communicated at the outset of the quarter and higher than the prior year primarily due to performance-based incentive compensation, along with previously noted non-cash pension expense.
Acquisition-related synergies and business restructuring programs delivered about $15 million of incremental cost savings in the quarter.

Outlook

The company is raising its adjusted EPS guidance for full-year 2023. The following projections take into consideration current global economic activity, soft global industrial production, continued economic uncertainty associated with the impacts of geopolitical issues, and higher interest rates in most developed countries.

Outlook	4Q 2023	FY 2023
Total organic sales	Up or down a low single-digit percent
Adjusted EPS	$1.44 – $1.50 per share	$7.58 – $7.64 per share

The effective tax rate for the fourth quarter 2023 is expected to be between 21.5% to 22.5%.

The quarterly and full-year adjusted EPS figures exclude amortization expense, previously approved and communicated business restructuring, a non-cash pension settlement charge, transaction-related costs, and the benefit from an insurance recovery in the first quarter 2023. Additional information related to 2023 financial projections may be found in the detailed commentary and associated presentation slides related to the third quarter financial information which are posted within the investors section of PPG.com.

The term organic sales as used in this press release is defined as net sales excluding the impact of currency, acquisitions, divestitures and the wind down of Russia operations.

For the complete press release, click here.

About PPG Industries

At PPG (NYSE: PPG), we work every day to develop and deliver the paints, coatings, and specialty materials that our customers have trusted for 140 years. Through dedication and creativity, we solve our customers’ biggest challenges, collaborating closely to find the right path forward. With headquarters in Pittsburgh, we operate and innovate in more than 70 countries and reported net sales of $17.7 billion in 2022. We serve customers in construction, consumer products, industrial and transportation markets, and aftermarkets. To learn more, visit www.ppg.com.

Contact:

Mark Silvey – Corporate Communications – silvey@ppg.com – (412) 434-3046

Source: PPG Industries, Inc.

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