PPG has released its financial results for the fourth quarter and full year of 2023. The company reported record sales in both the fourth quarter and all of 2023.
“Capping off a record year, the PPG team delivered solid year-over-year sales growth, strong adjusted earnings growth, and record operating cash flow. The breadth and diversity of our business portfolio was a key driver to our record fourth quarter performance, as we benefited from solid volume growth in China, demand stabilization in Europe and continued growth in several key end-use markets such as aerospace, automotive original equipment manufacturer (OEM) and protective coatings, said Tim Knavish, PPG chairman and CEO.
Fourth Quarter 2023 Financial Results by Segment:
Performance Coatings segment:
Performance Coatings net sales increased 5%, led by higher selling prices and favorable foreign currency translation.
Sales of PPG’s technology-advantaged aerospace products remained strong. Protective and marine coatings delivered mid-single-digit percentage organic sales growth driven by strong volume growth in the U.S. and Europe. Architectural coatings in Mexico delivered another strong quarter, as PPG continues to benefit from a growing Mexican economy and its Comex brand. U.S. and Canada architectural coatings sales were lower, as growth in the professional contractor channel was more than offset by continuing softness in do-it-yourself demand. Organic sales for architectural coatings in the EMEA region were down by a low single-digit percentage, as the benefit of higher prices was more than offset by lower but moderating volumes.
Segment income increased by 19% versus the prior year primarily due to higher selling prices and moderating input costs. Segment operating margins improved by 150 basis points year-over-year.
Industrial Coatings segment:
Industrial Coatings segment net sales were higher compared to the fourth quarter 2022, aided by favorable foreign currency translation.
Automotive Original Equipment Manufacturer (OEM) coatings organic sales increased with higher selling prices in all regions and higher aggregate sales volumes led by market share gains in the Asia-Pacific region and Mexico. Offsetting this sales volume growth was lower global industrial activity, which resulted in softer demand in all other businesses in the segment. Industrial coatings organic sales declined by a mid-single-digit percentage with lower volumes in most sub-segments. As expected, packaging coatings organic sales were down, driven by softer customer demand in Europe and Latin America but partially offset by strong growth in the U.S. and the Asia-Pacific region.
Segment income was higher than the prior year by $75 million, or 48%, primarily due to input costs moderating from historically high levels and improving manufacturing performance. Segment margins improved by 420 basis points compared to the fourth quarter 2022.
Additional Q4 Financial Information:
Corporate expenses were $100 million in the fourth quarter, higher than the prior year primarily due to increased performance and shareholder return-based incentive compensation along with non-cash pension expenses.
Reported EPS included a non-cash charge of $0.67 reflecting goodwill impairment for the Traffic Solutions business. The fair value of the Traffic Solutions business decreased primarily due to an increase in the weighted cost of capital (discount rate) assumption reflecting the current interest rate environment.
Net interest expense of $13 million was below the company’s expectation at the outset of the quarter due to the early repayment of a term loan and stronger than expected cash generation. At quarter end, the company had cash and short-term investments totaling nearly $1.6 billion. Net debt was $4.5 billion, which is about $1.2 billion lower compared to the prior year’s fourth quarter.
Full-Year 2023 Financial Results:
Record full-year 2023 net sales were approximately $18.2 billion, up about 3% versus the prior year. Organic sales were higher by 3% driven by higher selling prices. Adjusted EPS was also a record, increasing 27% due to higher selling prices, moderating input costs, structural cost savings and favorable foreign-currency translation, partially offset by lower sales volumes. Ending the year, input costs and inventory levels remain above historical levels.
In 2023, the company paid approximately $600 million in dividends. Capital expenditures totaled about $550 million. The company repurchased $100 million of stock in the fourth quarter and had about $1 billion remaining on its current share repurchase authorization at the end of 2023.
“We made strong progress on returning to our historic segment margin profile while delivering segment earnings growth of 30% and an aggregate segment margin improvement of 260 basis points, marking the fifth consecutive quarter of year-over-year margin improvement. Additionally, our earnings growth and working capital management resulted in strong cash generation in the quarter and record operating cash flow of over $2.4 billion for the year. We ended the year with a strong balance sheet that, coupled with our legacy of solid cash flow, provides us with shareholder value creation opportunities going forward,” continued Knavish.
“Looking at the full year, in addition to our record financial performance, we successfully implemented various strategic initiatives to strengthen the company, including key actions to position PPG for higher organic growth. We also executed on our ongoing portfolio review leading to the divestitures of both our European and Australian Traffic Solutions businesses and the recently announced strategic alternatives review of the silicas products business. Finally, we have continued our heritage of rewarding our shareholders with our 124th consecutive year of dividend payments, including 52 consecutive years of dividend increases.”
2024 Financial Outlook:
The company reported the following projections for the first quarter and full year 2024 based on current global economic activity, soft industrial production, demand stabilization in Europe, continued growth in Mexico, and demand improvement in China. The effective tax rate for the first quarter 2024 is expected to be between 24.0% to 25.0%, higher than prior year including the impact of several regional tax rate increases and the expected mix of country-specific earnings.
Knavish continued, “Looking ahead, while global industrial production remains at low absolute levels, we expect that demand for our businesses in China will continue to improve. In Europe, we believe that economic activity will stabilize in 2024 at current levels. In the U.S., we anticipate that economic conditions will remain subdued during the first half of 2024, and in Mexico, which is now our second largest country in terms of total net sales, we expect strong momentum to continue. From a PPG perspective, we plan to deliver volume growth in 2024 by executing on our key strategic growth initiatives and fully capitalizing on continued demand in several areas, including aerospace and Mexico, which will also benefit from cross-selling initiatives through our concessionaire network.
We are laser focused on maintaining the unwavering support of our customers as we leverage our strong brands and provide technology-advantaged products and solutions that enhance their productivity and sustainability. We aim to build on our strong 2023 financial performance by continuing our growth and value creation in 2024 for the benefit of all stakeholders. Finally, I want to thank our more than 50,000 employees around the world for “making it happen” in 2023 and positioning us for growth in 2024.”
To learn more, visit www.ppg.com.