PPG has reported fourth quarter 2016 net sales of $3.5 billion, down more than 1 percent versus the prior year. Sales in local currencies increased by more than 1 percent, aided by sales volume growth approaching 2 percent year-over-year. The net impact from business portfolio actions contributed less than 1 percent to sales growth as acquisition-related sales increases modestly exceeded the absence of sales from the divested European fiber glass business. PPG said these aggregate net sales gains were more than offset by unfavorable foreign currency translation, which reduced net sales by about 3 percent, or approximately $100 million.
Fourth quarter 2016 reported net income from continuing operations was $77 million, or 29 cents per diluted share. Adjusted net income from continuing operations was $313 million, or $1.19 per diluted share. Adjusted net income excludes after-tax charges totaling $236 million, or 90 cents per diluted share. These after-tax charges include: $146 million for business restructuring; $51 million for increases to legacy environmental reserves; $23 million for tax true-ups related to asbestos settlement funding; $5 million for a premium on the early retirement of debt; and $44 million for the loss on the sale of the European fiber glass business offset by a $33 million net gain on the disposals of ownership interests in business affiliates. For the fourth quarter of 2016, the effective tax rate was 42.1 percent and the adjusted effective tax rate was 24.5 percent.
Fourth quarter 2015 reported net income from continuing operations was $295 million, or $1.09 per diluted share. Fourth quarter 2015 adjusted net income from continuing operations was $313 million, or $1.16 per diluted share and excluded an after-tax charge for transaction-related costs of $11 million, or 4 cents per diluted share, and an equity affiliate debt-refinancing charge of $7 million, or 3 cents per diluted share. The effective tax rate was 23.3 percent for the fourth quarter 2015, and the adjusted effective tax rate for the quarter was 24.2 percent.
Financial results from the divested flat glass business are presented as discontinued operations for all periods, including a fourth quarter 2016 gain of $1.01 per diluted share from the business divestiture. Historical financial results of the divested fiber glass businesses are included in the Glass segment.
“We delivered fourth quarter and full-year adjusted earnings-per-diluted-share growth despite modest and uneven global economic growth and the impact of significant unfavorable foreign currency translation,” said Michael McGarry, PPG chairman and CEO. “We achieved these milestones due to improving sales volumes, continued aggressive cost management and ongoing earnings-accretive focused cash deployment
“For the full year, in addition to 7 percent adjusted earnings-per-share growth, we completed a variety of strategic actions to strengthen our company,” said McGarry. “These actions included continued business portfolio optimization through several acquisitions and divestitures and further minimization of legacy risk as we fully funded the Pittsburgh Corning asbestos trust and completed the annuitization of a large portion of U.S. and Canadian pension obligations. Additionally, we continued to invest in new product development and increased our spending focused on improving our organic growth results.
“As we begin 2017, we are operating in an uncertain and evolving macroeconomic and regulatory environment,” continued McGarry. “We expect improved momentum in overall global economic growth, including gradually improving growth rates in developed regions and continuing but uneven growth in emerging regions.
“However, the timeline for this growth improvement remains uncertain, so we are aggressively managing all elements within our control and recently initiated a new business restructuring program targeting $125 million in annual savings,” said McGarry. “Additionally, we will continue our growth investments and we have announced targeted selling-price increases to combat recent inflationary cost pressures. Finally, we anticipate deploying an additional $2.5 billion to $3.5 billion of cash on acquisitions and share repurchases in years 2017 and 2018 combined, as we remain focused on shareholder value creation/”
PPG reported today the following full-year 2016 approximate uses of cash: capital spending of $400 million, dividends paid of $415 million, acquisitions of $350 million and share repurchases of $1.05 billion. For the years 2015 and 2016 combined, the company deployed more than $2.5 billion of cash for acquisitions and share repurchases, achieving the top end of the previously communicated range. In April 2016, the company raised the per-share dividend by 11 percent. PPG has paid annual dividends for 117 consecutive years, including 45 consecutive years of increased annual payouts.
For the full year 2016, the company generated more than $1.2 billion in cash from operations, a decrease versus the prior year primarily due to the full funding of the Pittsburgh Corning asbestos trust, which exceeded $800 million pre-tax. Operating working capital ratios improved by 120 basis points year-over-year, as the company has averaged a more than 100 basis point annual improvement in this metric the past four years. Cash and short-term investments totaled approximately $1.9 billion, and the company had $1.9 billion remaining on its current share-repurchase authorization at year-end 2016.
Full-Year 2016 Financial Results
Full-year 2016 net sales from continuing operations were $14.8 billion, consistent with the prior year including an unfavorable foreign currency translation impact of nearly 3 percent, or approximately $400 million. Sales volume growth of 1 percent versus the prior year was supplemented by acquisition-related sales growth of nearly 2 percent, net of sales divested with the European fiber glass business.
The company’s 2016 full-year reported net income from continuing operations was $564 million, or $2.11 per diluted share, versus $1.34 billion, or $4.89 per diluted share, in 2015. Full-year 2016 adjusted net income from continuing operations was $1.55 billion, or $5.82 per diluted share, versus $1.49 billion, or $5.43 per diluted share, in 2015, representing an adjusted-earnings-per-diluted-share increase of 7 percent. In 2016, foreign currency translation unfavorably impacted pre-tax income by approximately $70 million. The effective tax rate from continuing operations was 29.1 percent for 2016, versus 23.8 percent for 2015, and the adjusted effective tax rate from continuing operations was 24.5 percent for 2016, versus 24.1 percent for 2015.