PPG recently reported fourth quarter 2019 net sales of nearly $3.7 billion, up approximately 1% versus the prior year. Net sales in constant currencies grew about 2% year-over-year, aided by higher selling prices of almost 2%. Sales volumes declined nearly 3% versus the prior year. Unfavorable foreign currency translation impacted net sales by approximately 1%, or about $30 million, and acquisition-related sales, net of divestitures, added nearly 3% to net sales.
Fourth quarter 2019 reported net income from continuing operations was $295 million, or $1.23 per diluted share. Adjusted net income from continuing operations was $313 million, or $1.31 per diluted share. Fourth quarter 2018 reported net income from continuing operations was $256 million, or $1.07 per diluted share, and adjusted net income from continuing operations was $271 million, or $1.15 per diluted share. For the fourth quarter 2019, the effective and adjusted tax rates were both about 24%. For the fourth quarter 2018, the effective and adjusted tax rates were approximately 24% and 26% respectively. Reconciliations of the reported to adjusted figures are included below.
“For the second consecutive quarter, we delivered adjusted earnings per share growth of more than 10%, reflecting continuing improvement in our segment operating margins, which increased 160 basis points year-over-year,” said Michael H. McGarry, PPG chairman and CEO. “We delivered this strong performance in spite of weakening global manufacturing activity that impacted many of our industrial end-use markets. As the quarter progressed, industrial demand began to stabilize in China, but remained challenged in Europe and the U.S.
“For the full year, we delivered adjusted earnings per diluted share growth of about 8%, excluding foreign currency translation, firmly within the 2019 earnings guidance we provided last January. I am pleased that we achieved our earnings target despite macroeconomic conditions that weakened throughout the year. This record performance, including strong adjusted earnings and cash flow growth, reflects our focus on delivering value-added products and services to our customers and our focus on operational excellence and working capital improvement.
“Strategically, we completed several acquisitions during the year including Whitford, Hemmelrath, Dexmet and Texstars. Annualized revenue of the acquisitions we have announced since December 2018 is approximately $500 million, of which about $100 million is in the Asia-Pacific region. We are pleased to welcome these businesses, their customers and our new employees into the PPG family.
“Our 2019 cash flow from operations totaled approximately $2.1 billion, which is about $600 million higher than 2018 and an all-time record for any year. We also continued our legacy of returning cash to shareholders, with about $800 million returned in 2019 through share repurchases and dividends, including a per share dividend increase for the 48th consecutive year,” McGarry continued.
“As we start 2020, we expect organic growth in our Performance Coatings segment to continue as we supply various consumer-facing and aftermarkets where demand remains solid, although segment sales will be impacted due to lower production rates by an aerospace customer. With respect to our Industrial Coatings segment, we anticipate a return to volume growth in the second half of 2020. At the outset of this year, we are beginning to see a modest recovery in China industrial demand, but expect weak general industrial demand to continue in Europe and the U.S. We will continue to aggressively manage our businesses based on these forecasts. Given these expectations, our full-year 2020 financial guidance is as follows:
• Sales growth of 1 to 3 percent in constant currencies, including recently announced acquisitions
•Adjusted earnings per share growth of 4% to 9%, excluding currency translation impacts
“Our guidance range is broad reflecting the heightened level of uncertainty at this particular time. Embedded in our guidance is first quarter earnings per diluted share from continuing operations of $1.32 to $1.42.
“I am very pleased with our team’s ability to achieve record adjusted earnings per diluted share results in 2019, despite broad contraction in industrial demand in most parts of the world. We remain committed to investing in the development of innovative products and solutions for our customers while continuously improving our operational performance. We strongly believe this is a great formula for long-term shareholder value creation. We have an outstanding team and are well-positioned strategically and financially to continue our growth,” concluded McGarry.
Fourth Quarter 2019 Reportable Segment Financial Results
Performance Coatings segment fourth quarter net sales were nearly $2.2 billion, 2% higher than the previous year. Net sales in constant currencies were approximately $60 million higher – about a 3% increase. Higher selling prices contributed 2% to net sales. Segment volumes were relatively flat. Acquisition-related sales added approximately $20 million, or about 1% to net sales, driven by SEM, Dexmet, and Texstars. Unfavorable foreign currency translation lowered net sales by about $15 million, or less than 1%.
Aerospace coatings sales volumes grew by a high-single-digit percentage as a result of solid industry demand and continued strong customer adoption of PPG’s technology-advantaged products. Net sales, excluding the impact of currency and acquisitions (organic sales), for automotive refinish coatings were higher by a low-single-digit percentage as the unfavorable impact of customer inventory management in Europe was offset by increased selling prices. Aggregate protective and marine coatings sales volumes increased by a mid-single-digit percentage, with strong growth in marine coatings. Most major channels in the architectural coatings – Americas and Asia-Pacific business delivered favorable year-over-year net sales for the quarter, including U.S. company-owned same store sales. Architectural coatings – Europe, Middle East and Africa (EMEA) organic sales decreased by a low-single-digit percentage, as lower sales volumes were partially offset by higher selling prices.
Segment income for the fourth quarter was $307 million, $46 million higher than the prior-year fourth quarter. Segment income was aided by higher selling prices and cost management, partially offset by general cost inflation.
Industrial Coatings segment fourth quarter net sales were about $1.5 billion, down $16 million, or 1%, versus the prior-year period. Higher selling prices were more than offset by a 6% sales volume decline. Acquisition-related sales were approximately $80 million, adding 5% to net sales, driven by Whitford and Hemmelrath. Unfavorable foreign currency translation lowered net sales by about $15 million, or about 1%.
Automotive original equipment manufacturer (OEM) coatings sales volumes decreased by a mid-single-digit percentage consistent with lower global automotive industry production rates, partly offset by higher selling prices. General industrial coatings net sales increased by a low-single-digit percentage versus the prior year as higher selling prices and acquisition-related sales were partially offset by lower sales volumes, reflecting weakness in global manufacturing activity. General industrial coatings sales volumes declined by at least a mid-single-digit percentage in each major region. Packaging coatings sales volumes decreased a mid-single-digit percentage year-over-year partially driven by continuing soft demand for canned food products.
Segment income for the fourth quarter was $203 million, up $16 million, or about 9%, year-over-year, including unfavorable foreign currency translation impacts of $2 million. Segment income benefited from improved selling prices, strong cost management, and acquisition-related income, partially offset by the impact of lower sales volumes and general cost inflation.
In addition, the company reported:
• Fourth quarter cost savings, related to restructuring initiatives, of slightly more than $20 million and about $85 million for the full-year 2019. The company expects incremental cost savings of at least $75 million in 2020, which is reflected in the earnings guidance.
• Fourth quarter corporate expenses of about $65 million, including higher non-recurring employee benefit costs of about $5 million during the quarter.
• The company’s global effective tax rate is expected to be in the range of 22% to 23% for the first quarter of 2020, and 22% to 24% for the full-year 2020.
Full-Year 2019 Financial Results
Full-year 2019 reported net sales from continuing operations were approximately $15.1 billion, down 1.5% versus the previous year, including net unfavorable foreign currency translation of about 3%, or approximately $400 million. Organic sales were down nearly 1% versus the prior year and acquisition-related sales added 2% to net sales. Full-year net sales were impacted by previously announced customer assortment changes that lowered sales volumes by nearly 1%, and the unfavorable impact of these changes anniversaried mid-year. Full-year 2019 reported net income from continuing operations was $1.2 billion, or $5.22 diluted share, versus $1.3 billion, or $5.40 per diluted share, in 2018. Full-year 2019 adjusted earnings per diluted share from continuing operations grew about 5% year-over-year to $6.22 compared with $5.92 in 2018, with growth of about 8% when excluding unfavorable foreign currency translation. The effective tax rate from continuing operations was about 24% for 2019, versus about 21% for 2018, and the adjusted effective tax rate from continuing operations was about 24% for 2019, versus about 22% for 2018. Reconciliations of the reported to adjusted figures are included below.
For full-year 2019, the company returned about $800 million to shareholders, including approximately $325 million of share repurchases and about $470 million in dividends. Capital expenditures totaled about $415 million. The company ended the year with approximately $5 billion of total debt, and about $1.3 billion of cash and short-term investments. The company had about $1.5 billion remaining on its current share repurchase authorization at year-end 2019.
