PPG Industries(PPG) - 2024 Q1 - Quarterly Report

Part I. Financial Information This section provides the company's financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2024, showing a slight decrease in net sales but a significant increase in net income attributable to PPG Condensed Consolidated Statement of Income For the three months ended March 31, 2024, PPG reported a 1.6% decrease in net sales to $4,311 million, while net income attributable to PPG significantly rose to $400 million due to the absence of a prior-year pension settlement charge Condensed Consolidated Statement of Income (Unaudited) | ($ in millions, except per share amounts) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net sales | $4,311 | $4,380 | | Cost of sales, exclusive of depreciation and amortization | 2,445 | 2,596 | | Selling, general and administrative | 1,064 | 992 | | Pension settlement charge | — | 190 | | Income before income taxes | $538 | $353 | | Income tax expense | 129 | 80 | | Net income (attributable to PPG) | $400 | $264 | | Earnings per common share (attributable to PPG) - assuming dilution | $1.69 | $1.11 | Condensed Consolidated Balance Sheet As of March 31, 2024, PPG's total assets slightly increased to $21.87 billion, with total liabilities also marginally rising, while cash and cash equivalents decreased Condensed Consolidated Balance Sheet Highlights (Unaudited) | ($ in millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,181 | $1,514 | | Receivables, net | 3,581 | 3,279 | | Inventories | 2,331 | 2,127 | | Goodwill | 6,140 | 6,200 | | Total assets | $21,867 | $21,647 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $4,943 | $5,054 | | Long-term debt | 5,940 | 5,748 | | Total liabilities | $13,741 | $13,624 | | Total PPG shareholders' equity | $7,941 | $7,832 | Condensed Consolidated Statement of Cash Flows Cash used for operating activities was $60 million in Q1 2024, a significant shift from the prior year's positive cash flow, primarily due to unfavorable working capital changes and increased investing activities Condensed Consolidated Statement of Cash Flows (Unaudited) | ($ in millions) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Cash (used for)/from operating activities | ($60) | $85 | | Cash used for investing activities | ($239) | ($64) | | Cash (used for)/from financing activities | ($35) | $277 | | Net (decrease)/increase in cash and cash equivalents | ($333) | $327 | Notes to Condensed Consolidated Financial Statements The notes detail financial statement support, including no goodwill impairment, an additional €250 million term loan borrowing, the impact of the Q1 2023 pension settlement charge, and environmental reserves totaling $220 million - No indication of goodwill impairment was identified for any reporting units during the quarter ended March 31, 2024[30] - In January 2024, PPG borrowed an additional €250 million under its Term Loan credit agreement[36] - In March 2023, the company recognized a non-cash Pension settlement charge of $190 million, which was not repeated in 2024[50] Environmental Reserves | ($ in millions) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | New Jersey Chrome | $50 | $53 | | Glass and chemical | 53 | 54 | | Other | 117 | 120 | | Total environmental reserves | $220 | $227 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, noting a 1.6% sales decrease due to lower volumes, an increase in adjusted EPS driven by moderating raw material costs, and strategic reviews for certain businesses - Net sales for Q1 2024 were $4.3 billion, a decrease of 1.6% YoY, driven by a 2% decline in sales volumes[118][121] - Adjusted earnings per diluted share increased to $1.86 from $1.82 in the prior year, primarily due to moderating raw material costs offsetting lower sales volumes[125] - Cash used for operating activities was $60 million, a $145 million decrease from the prior year, mainly due to unfavorable working capital changes[145] - PPG announced strategic reviews for its architectural coatings U.S. and Canada business and its global silicas products business[158] Performance of Reportable Business Segments Both Performance Coatings and Industrial Coatings segments reported higher segment income despite sales challenges, benefiting from moderating raw material costs Performance Coatings Segment Results | ($ in millions) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $2,614 | $2,628 | (0.5)% | | Segment income | $402 | $395 | 1.8% | - Performance Coatings sales were impacted by lower volumes (-3%), particularly in architectural coatings in EMEA and the Americas, partially offset by higher prices (+1%) and favorable currency (+1%), with aerospace coatings sales increasing by a mid-single-digit percentage[132][135] Industrial Coatings Segment Results | ($ in millions) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,697 | $1,752 | (3.1)% | | Segment income | $249 | $240 | 3.8% | - Industrial Coatings sales decreased due to lower selling prices (-2%) and lower volumes (-1%), with automotive OEM coatings sales decreasing by a low single-digit percentage and packaging coatings remaining flat[139][140] Liquidity and Capital Resources PPG ended Q1 2024 with $1.2 billion in cash, used $60 million in cash from operations due to working capital changes, and projects $600 million in capital spending for 2024, while maintaining compliance with debt covenants - Cash and short-term investments totaled $1.2 billion at March 31, 2024, down from $1.6 billion at year-end 2023[143] - Total capital spending for 2024 is projected to be approximately $600 million[149] - In January 2024, PPG borrowed an additional €250 million under its Term Loan[151] - As of March 31, 2024, the company's ratio of Total Indebtedness to Total Capitalization was 43%, well below the 60% covenant limit[154] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, using derivatives to hedge these exposures, with a hypothetical adverse change in exchange rates potentially reducing pre-tax income by $409 million - The company is exposed to foreign currency transaction and translation risk, where a hypothetical adverse change in exchange rates could reduce pretax income by $409 million as of March 31, 2024[172] - PPG manages interest rate risk by balancing fixed and variable rate debt, using interest rate swaps to convert $375 million of fixed-rate debt to variable-rate[175] - A 10% increase in variable interest rates would increase annual interest expense by $6 million for the period ended March 31, 2024[175] Controls and Procedures The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the reporting period[177] - No material changes to the Company's internal control over financial reporting occurred during the first quarter of 2024[178] Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits filed with the report Legal Proceedings PPG is involved in various lawsuits and claims, including environmental and asbestos-related matters, with a trial for a Clean Water Act civil penalty scheduled for June 2024 - PPG is involved in numerous lawsuits and claims related to contract, patent, environmental, product liability, and asbestos matters[180] - A trial regarding a civil penalty under the Clean Water Act for a former disposal site in Pennsylvania is scheduled for June 3, 2024[182] - The company continues to be a defendant in lawsuits alleging personal injury from asbestos exposure, as detailed in Note 13[183] Risk Factors No material changes to the company's risk factors were reported compared to those disclosed in the 2023 Annual Report on Form 10-K - No material changes in the Company's risk factors were reported compared to the 2023 Form 10-K[184] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, PPG repurchased 1,061,901 shares at an average price of $141.29 per share, and the Board authorized a new $2.5 billion share repurchase program on April 18, 2024 Issuer Purchases of Equity Securities (Q1 2024) | Month | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | — | $— | | February 2024 | — | $— | | March 2024 | 1,061,901 | $141.29 | | Total Q1 2024 | 1,061,901 | $141.29 | - On April 18, 2024, the Board of Directors authorized an additional $2.5 billion share repurchase program[186] Other Information During the first quarter of 2024, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[187] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL data files - The report includes certifications from the CEO and CFO pursuant to Sarbanes-Oxley Act Sections 302 and 906[191] - The filing includes financial statements and notes formatted in Inline XBRL[193]