PPG Industries(PPG) - 2024 Q2 - Quarterly Results

Q2 2024 Financial Highlights PPG reported record earnings for Q2 2024, achieving $4.8 billion in net sales with flat organic growth and continued shareholder returns Q2 2024 Key Financial Metrics | Metric | 2Q 2024 | 2Q 2023 | YOY Change | | :--- | :--- | :--- | :--- | | Net Sales | $4,794 million | $4,872 million | (2)% | | Net Income | $528 million | $490 million | +8% | | Adjusted Net Income | $590 million | $534 million | +10% | | Reported EPS | $2.24 | $2.06 | +9% | | Adjusted EPS | $2.50 | $2.25 | +11% | - Organic sales were flat year-over-year, with growth in aerospace, packaging, and architectural coatings in the Americas and Asia Pacific offset by declines in automotive refinish and softness in global automotive and industrial production[1][54] - The company repurchased approximately $150 million in shares during the quarter, bringing the year-to-date total to $300 million[1][17] - Segment margins improved by 110 basis points year-over-year, marking the seventh consecutive quarter of margin expansion[1][17] Chairman and CEO Comments The Chairman and CEO highlighted strong financial results and record earnings, noting consistent adjusted EPS growth and margin expansion amidst mixed regional performance and strategic reviews - Management reported the sixth consecutive quarter of year-over-year adjusted EPS growth and the seventh for segment margin improvement[16][17] - Geographic performance was mixed: financial results benefited from established businesses in Mexico and China, but European sales volumes were unfavorable and below initial expectations[2][39] - Strategic reviews for the architectural coatings U.S. and Canada business and the global silicas business are progressing on schedule[40] Segment Performance Total segment income increased in Q2 2024, with Performance Coatings achieving record margins despite flat sales, while Industrial Coatings saw income growth despite a sales decline Performance Coatings Segment The Performance Coatings segment reported flat net sales of $3.0 billion but a 6% income increase to $570 million, achieving record 18.7% margins Performance Coatings Q2 Results ($ million) | Metric | 2Q 2024 | 2Q 2023 | YOY Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,048 | $3,041 | 0% | | Segment Income | $570 | $537 | +6% | | Segment Income % | 18.7% | 17.7% | +100 bps | - Aerospace products sales remained strong, with double-digit percentage organic sales growth and an increased order backlog of approximately $290 million[41] - Architectural coatings organic sales grew by a low single-digit percentage in the Americas and Asia Pacific, supported by the professional contractor segment, with Mexico delivering record sales and earnings[5] - Automotive refinish coatings organic sales declined by a mid-single-digit percentage due to a challenging prior-year comparison and uneven U.S. distributor order patterns[5] Industrial Coatings Segment Industrial Coatings segment net sales declined 5% to $1.7 billion, yet segment income increased 4% to $259 million, with margins improving by 110 basis points Industrial Coatings Q2 Results ($ million) | Metric | 2Q 2024 | 2Q 2023 | YOY Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,746 | $1,831 | (5)% | | Segment Income | $259 | $250 | +4% | | Segment Income % | 14.8% | 13.7% | +110 bps | - Automotive OEM coatings organic sales decreased by a high single-digit percentage due to lower prices and industry volumes in the U.S. and Europe[21] - Packaging coatings organic sales grew by a mid-single-digit percentage, driven by higher sales volumes from market share gains[21] - Industrial coatings organic sales declined by a low single-digit percentage due to subdued industrial activity in the U.S. and Europe, which offset growth in China and India[21] Financial Position and Cash Flow PPG's Q2 2024 financial position shows $1.2 billion in cash and $5.2 billion in net debt, with cash from operations for the first six months at $305 million - At quarter-end, the company had cash and short-term investments of $1.2 billion and net debt of $5.2 billion, down $0.4 billion year-over-year[44] Balance Sheet Highlights ($ million) | Account | June 30, 2024 | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $1,131 | $1,514 | $1,228 | | Inventories | $2,299 | $2,127 | $2,506 | | Total current assets | $7,784 | $7,431 | $8,068 | | Total current liabilities | $5,225 | $5,054 | $5,416 | | Long-term debt | $5,765 | $5,748 | $6,099 | Six Months Ended Cash Flow Highlights ($ million) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash from operating activities | $305 | $621 | | Capital expenditures | $374 | $242 | | Dividends paid | $305 | $292 | Outlook PPG projects flat to low single-digit organic sales growth for Q3 and FY2024, with adjusted EPS forecasts of $2.10-$2.20 for Q3 and $8.15-$8.30 for the full year 2024 Financial Projections | Outlook | 3Q 2024 | FY 2024 | | :--- | :--- | :--- | | Organic sales growth | Flat to up low single digits | Flat to up low single digits | | Adjusted EPS | $2.10 - $2.20 per share | $8.15 - $8.30 per share | - The company expects modest sequential quarterly improvement in general industrial demand and projects organic growth in automotive refinish and protective and marine coatings in Q3[3] - The effective tax rate for Q3 2024 is expected to be 23.5% to 24.5%, higher than the prior year's adjusted rate of 19.5% due to regional tax rate increases and a different mix of country-specific earnings[29] Financial Statements This section presents the unaudited condensed consolidated financial statements for Q2 2024 and 2023, including the Statement of Income, Balance Sheet, Cash Flows, and Segment Information Condensed Consolidated Statement of Income Condensed Consolidated Balance Sheet Condensed Consolidated Statement of Cash Flow Segment Information Regulation G Reconciliation (Non-GAAP Measures) This section reconciles Q2 2024 U.S. GAAP financial results to adjusted non-GAAP figures, detailing adjustments from reported net income of $528 million to $590 million Reconciliation of Reported to Adjusted Net Income and EPS (Q2) | ($ million, except per share) | 2024 $ | 2024 EPS | 2023 $ | 2023 EPS | | :--- | :--- | :--- | :--- | :--- | | Reported Net Income | $528 | $2.24 | $490 | $2.06 | | Acquisition-related amortization | $27 | $0.11 | $30 | $0.13 | | Business restructuring-related costs | $2 | $0.01 | $11 | $0.05 | | Portfolio optimization | $18 | $0.08 | $3 | $0.01 | | Legacy environmental remediation | $15 | $0.06 | — | — | | Adjusted Net Income | $590 | $2.50 | $534 | $2.25 | - Management believes these adjusted figures are useful for investors as they exclude items that are not expected to recur quarterly or are not part of primary operations[25]