Overall sales for the company were down 1% compared to last year. U.S. refinish sales up high single digit percentage despite lower collision claims. Announces sale of U.S. and Canada architectural coating business.
PPG (NYSE:PPG) yesterday reported net sales of $4.575 billion for the third quarter of 2024, down 1% from $4.644 billion in the third quarter last year due to the impact of foreign currency translation and business divestitures, including its traffic solutions business in Europe, Australia and Argentina.
PPG also announced today an agreement to sell 100% of its architectural coatings business in the U.S. and Canada at a transaction value of $550 million to American Industrial Partners (AIP), an industrials investor.
Organic sales, excluding the impact of currency, acquisitions and divestitures, were flat year over year as growth in its Performance Coatings segment was offset by headwinds in its Industrial Coatings segment that includes Automotive OEM coatings.
Performance Coatings segment sales, that include automotive refinish, were $2.921 billion in the third quarter, up 1% from $2.88 billion last year. Performance Coatings net sales increased, as higher sales volumes and selling prices were partially offset by the divestitures of the non-North American portion of the traffic solutions business and unfavorable foreign currency translation.
PPG reported third quarter organic sales for automotive refinish coatings increased a mid-single-digit percentage versus the prior year. In the U.S. market, sales volumes for technology-advantaged collision products and services grew a high single-digit percentage year over year despite lower industry collision claims.
In Europe, automotive refinish organic sales increased modestly year over year driven by price, and demand improved slightly in Latin America. In China, demand for refinish products is recovering and is expected to improve in the coming quarters.
In the third quarter, the company grew the number of LINQ services subscriptions and added approximately 100 Moonwalk installations, further supporting customer productivity and related share gain. The company expects fourth quarter 2024 organic sales to be flat compared to the prior year.
Tim Knavish, PPG chairman and chief executive officer, commented on the quarter, said, “We delivered record third quarter EPS driven by positive volume growth in seven of our ten businesses, including strong growth in several of our key technology businesses and despite deterioration in automotive original equipment manufacturer (OEM) build rates during the quarter. Our reported EPS was $2.00, and adjusted EPS of $2.13 grew 3% year over year even with an unfavorable impact from a higher effective income tax rate, which reduced the year-over-year EPS comparison by $0.08. The third quarter was our seventh consecutive quarter of adjusted EPS growth. Our aggregate segment margin improved 60 basis points year over year aided by business mix and lower costs, marking our eighth consecutive quarter of increases.
Knavish continued, “We delivered year-over-year sales volume growth of 2% in the Performance Coatings segment, offset by increasingly challenged global industrial production, which constrained demand in the Industrial Coatings segment. Performance Coatings growth was catalyzed by sustained strength in aerospace demand, refinish coatings share gains, and strong performance in the architectural coatings Americas and Asia Pacific business. This growth was offset by Industrial Coatings segment declines in Europe and the U.S. where automotive OEM build rates weakened, especially late in the quarter and general industrial production remained soft. In the Asia-Pacific region, both reporting segments delivered solid sales growth in China and India, driven by our share gains.”
“During the quarter, we extended our heritage of rewarding our shareholders. We repurchased approximately $200 million of stock during the third quarter and have repurchased about $500 million year to date. In July, we increased our quarterly dividend by 5%, and we paid about $160 million in dividends in the quarter with approximately $465 million paid year to date. Our balance sheet remains strong, which continues to provide us with the financial flexibility to drive shareholder value creation going forward,” continued Knavish. “Looking ahead, we maintain our full-year 2024 sales and EPS guidance, expecting organic sales to be flat and adjusted earnings per share to be at the low end of the $8.15 to $8.30 range. The pending closure of the silicas products business divestiture and the architectural coatings U.S. and Canada strategic review reflects the execution of our enterprise growth strategy to focus our resources on businesses where we have the greatest growth and margin opportunities. Finally, we remain committed to our heritage of strong cost management and improved productivity that reinforces our ability to maintain momentum in driving higher margins and earnings growth.”
Sale of Architectural Coatings Business in U.S. and Canada, Cost Reduction Program
PPG today also announced that it has reached an agreement to sell 100% of its architectural coatings business in the U.S. and Canada at a transaction value of $550 million to American Industrial Partners (AIP), an industrials investor.
The transaction, which is expected to close in late 2024 or early 2025 is the result of PPG’s evaluation of strategic alternatives for the business, which was first announced on February 26. Net cash paid to PPG at closing will include customary adjustments for working capital and net debt. Goldman Sachs & Co. LLC acted as PPG’s exclusive financial advisor and Hogan Lovells U.S. LLP served as its legal advisor.
The company today also announced a comprehensive cost reduction program with anticipated annualized pre-tax savings of approximately $175 million once fully implemented, including savings of $60 million in 2025. The multi-year program is focused on reducing structural costs primarily in Europe and in certain other global businesses, along with other corporate costs following the two recently announced agreements to sell PPG’s silicas products business and the architectural coatings business in the U.S. and Canada. The program includes various facility closures and other targeted fixed costs. The company will record a pre-tax charge of approximately $250 million in the fourth quarter 2024, and other charges over the next several years when certain costs are incurred. In total, PPG expects the cost reduction program to impact about 1,800 positions, primarily in Europe and the U.S.
“We are pleased to reach an agreement with American Industrial Partners and believe the business is well positioned to leverage its current positive momentum, leading brands, proven innovation, established customers, and dedicated and talented employees,” said Knavish. “I want to thank the architectural coatings U.S. and Canada employees for their dedication and commitment throughout the years to deliver the quality products and services that meet our customers’ evolving needs.
“From a PPG perspective, this transaction, along with the pending sale of our silicas products business, demonstrates the active portfolio management by the company and our Board. These divestitures further optimize our portfolio by improving our organic growth and financial return profiles and will result in increased capability to channel our growth resources to areas where we have the strongest right to win with our customers,” Knavish continued. “In addition, we are taking decisive self-help actions to reduce our overall cost structure. While these decisions are difficult, they are necessary to adjust our fixed cost base and to right-size our company following these two business divestitures. None of these actions will impact our ongoing investments or focus on organic growth.”
The architectural coatings business in the U.S. and Canada represented approximately $2 billion of PPG’s 2023 total net sales, with low-single-digit EBITDA margin. As previously stated, on a 3-year pro forma basis PPG’s overall company sales volume results would have improved cumulatively by over 200 basis points excluding this business. Also, the company’s Performance Coatings segment operating (EBIT) income, excluding the U.S. and Canada architectural coatings EBIT and the associated growth-related investments we have made, would have resulted in an approximately 300-basis point improvement in segment margins in 2023.
PPG’s architectural coatings businesses in the other regions around the world, including in Latin America, Europe and Asia Pacific, where PPG holds #1 or #2 positions in a number of key countries, remain core businesses within the company’s portfolio.