PPG recently announced that it has approved significant and broad restructuring actions to reduce its global cost structure. The company cited weakened global economic conditions stemming from the COVID-19 pandemic and related pace of recovery in a few end-use markets, along with further opportunities to optimize supply chain and functional costs.
When completed, the company expects the planned actions will deliver $160 to $170 million in annual pre-tax cost savings, with approximately $25 to $35 million of savings projected in 2020. The remainder of the annual cost savings is anticipated to be substantially realized by year-end 2021. The plan includes a voluntary separation program that was offered in the U.S. and Canada.
“Given the broad economic impact relating to the COVID-19 pandemic and the recovery timeline in a few end-use markets, we are taking decisive action to further adjust our cost base,” said Michael H. McGarry, PPG chairman and CEO. “These measures will enable the company to come out of the crisis with lower structural costs. As a result of these actions, along with continued discretionary cost controls, we expect strong operating margin leverage as economic activity continues to improve. Despite efforts to reduce our total costs, we remain committed to continuing our investments in growth-related initiatives, including fully funding our research and development for products, services and digital capabilities that will drive long-term growth.”
PPG will record a restructuring charge of $160 to $180 million pretax, $125 to $140 million after-tax, or $0.52-$0.58 cents per diluted share, in the second quarter 2020, which is nearly all related to employee severance. The company will also incur other associated restructuring-related costs of approximately $10 million over future quarters. The total cash outlay to complete these actions is approximately $180 million, with about $110 million expected in 2020 and the remainder in 2021. The cash outlay includes capital expenditures to relocate certain operational activities.
Separately, while the COVID-19 pandemic continues to effect business demand, the aggregate impact and pace of recovery is consistent with the company’s expectations noted during its April 28 earnings teleconference. This includes strong demand for architectural do-it-for-yourself coatings, aerospace applications for military programs and packaging coatings, but which has been more than offset by soft demand for commercial aerospace, automotive original equipment manufacturer (OEM), automotive refinish, architectural do-it-for-me and certain general industrial coatings end uses.
In aggregate, company sales volumes were lower versus the prior year in April by approximately 35%. The company saw continued improvement throughout the month of May, with aggregate monthly sales down less than 30% versus 2019. Volume results in both months were modestly better than the company originally forecasted. These results include higher year-over-year volumes in China and sequential monthly improvement of net sales in both the U.S. and Europe. Further sequential improvement is expected in June reflecting higher run-rate demand levels exiting May and additional reopening of economic activity across the world.
The company will provide further details during its second quarter earnings update in July.
