PPG Releases First Quarter 2022 Financial Results

• Record first-quarter net sales of approximately $4.

  
  

• Organic sales up nearly 7%, driven by higher product prices

• Diluted EPS was $0.

  
  

• Net income included approximately $290 million in charges related to the closure of the Russian business, mostly non-cash charges

• Raw material costs climbed 25% year-on-year, as did energy and transportation costs

• Supply chain disruptions eased in Q1

Record first-quarter net sales of approximately $4.

Organic sales up nearly 7%, driven by higher product prices

Diluted EPS was $0.

Net income included approximately $290 million in charges related to the closure of the Russian business, mostly non-cash charges

Raw material costs climbed 25% year-on-year, as did energy and transportation costs

Supply chain disruptions eased in Q1

The acquisition of the Arsonsisi powder coatings production business was completed on April 1, and the balance sheet remains flexible

PITTSBURGH--(BUSINESS WIRE)--PPG (NYSE:PPG) today reported first quarter 2022 earnings

Message from the Chairman of the Board and Chief Executive Officer

Commenting on the first quarter results, PPG Chairman and Chief Executive Officer Michael H.

In the first quarter of this year, the problem of supply chain disruption was still severe, the impact of European geopolitics was gradually emerging, and China's epidemic prevention measures were becoming increasingly strict

In addition to further price increases, adjusted EPS for the first quarter exceeded our financial guidance in January, primarily due to higher-than-expected sales volumes, improved operating leverage, and stabilizing raw material supplies, resulting in improved production efficiency sequentially

Going forward, overall demand for PPG products is expected to remain stable, with certain end markets expected to recover gradually from the COVID-19 pandemic

Nonetheless, I remain optimistic about PPG's organic sales growth prospects

Performance of each business unit in the first quarter of 2022

The increase in net sales in the Performance Coatings business segment was primarily driven by price increases in each business and acquisition-related sales

Net profit in the Functional Coatings segment was lower than a year earlier due to higher raw material, logistics and energy costs, higher production costs and lower sales volumes, but this was partially offset by price increases and cost savings from business restructuring

The increase in net sales of the Industrial Coatings business unit was mainly due to acquisition-related sales and higher selling prices in all businesses, but due to the high sales base in the first quarter of 2021 during the epidemic recovery period, sales in the first quarter of this year declined.
Somewhat dragged down sales
.
In addition, the slowdown in economic activity in China during the Winter Olympics and the escalation of anti-epidemic measures at the end of March had a certain impact on most businesses
.
The organic sales of the automotive original equipment manufacturer (OEM) coatings business increased year-on-year, mainly due to higher selling prices, but due to factors such as customer parts shortages, geopolitical risks in Europe, and plant shutdowns in China, sales declined.
To a certain extent dragged down sales
.
The Industrial Coatings business benefited from price hikes and solid sales growth in the Americas.
Sales achieved high-single-digit organic growth in the first quarter, but the performance of the business was partly affected by a decline in demand due to the upgrade of China's epidemic prevention measures
.
The Packaging Coatings business delivered strong organic sales growth, mainly due to higher selling prices and strong sales of canned beverages in the United States
.
Acquisition-related sales were mainly from the Wörwag, Tikkurila and Cetelon businesses
.

Net profit in the Industrial Coatings business unit was lower than the same period last year, mainly due to higher raw material costs, higher operating costs due to production interruptions at the beginning of the quarter, and lower product sales, but the impact was partially offset by price increases, restructuring cost savings and acquisition-related earnings.
offset
.
The segment's margins recovered sequentially from the fourth quarter of 2021
.

other financial information

• At the end of the first quarter, the company had total cash and short-term investments of approximately $1 billion and net debt of $6.
  1 billion, an increase of approximately $600 million from the end of the fourth quarter of 2021
  .
  Working capital increased, reflecting seasonal trends and higher raw material costs
  .
  

• Operating expenses for the first quarter were $52 million, lower than expected, primarily due to lower management incentive compensation expenses
  .
  

• The business restructuring plan achieved approximately $12 million in cost savings
  .
  

• First-quarter net profit included about $290 million in pretax charges related to the closure of operations in Russia, most of which were non-cash charges
  .
  The Russian business accounts for about 1% of the group's net sales for the full year 2021 and the first quarter of this year
  .
  

• The effective tax rate for the first quarter was approximately 70% and the adjusted effective tax rate was approximately 23%
  .
  The higher tax rate was mainly due to the approximately 9% tax impact from the closure of the Russian business
  .
  

At the end of the first quarter, the company had total cash and short-term investments of approximately $1 billion and net debt of $6.
1 billion, an increase of approximately $600 million from the end of the fourth quarter of 2021
.
Working capital increased, reflecting seasonal trends and higher raw material costs
.

Operating expenses for the first quarter were $52 million, lower than expected, primarily due to lower management incentive compensation expenses
.

The business restructuring plan achieved approximately $12 million in cost savings
.

First-quarter net profit included about $290 million in pretax charges related to the closure of operations in Russia, most of which were non-cash charges
.
The Russian business accounts for about 1% of the group's net sales for the full year 2021 and the first quarter of this year
.

The effective tax rate for the first quarter was approximately 70% and the adjusted effective tax rate was approximately 23%
.
The higher tax rate was mainly due to the approximately 9% tax impact from the closure of the Russian business
.

Performance Outlook

Based on the current global economic situation, geopolitical risks in Europe and the recent economic uncertainty caused by the new crown epidemic, the company has made the following forecasts for the second quarter of 2022:

• Cumulative net sales declined year-over-year in low to mid-single digits

• Operating expenses are approximately $60-70 million

• Net interest expense of approximately $26-30 million

• Effective tax rate is around 23-24%

• Diluted earnings per share between $1.
  44 and $1.
  74

• Adjusted earnings per diluted share were between $1.
  60 and $1.
  90, excluding amortization charges of $0.
  14 and costs related to previously approved and disclosed business restructuring of $0.
  02
  .
  

Cumulative net sales declined year-over-year in low to mid-single digits

Operating expenses are approximately $60-70 million

Net interest expense of approximately $26-30 million

Effective tax rate is around 23-24%

Diluted earnings per share between $1.
44 and $1.
74

Adjusted earnings per diluted share were between $1.
60 and $1.
90, excluding amortization charges of $0.
14 and costs related to previously approved and disclosed business restructuring of $0.
02
.

Detailed first-quarter earnings and related materials have been published on the company's investor relations website
.