PPG has fourth quarter 2020 net sales of approximately $3.8 billion, more than 2% higher versus the prior year. Selling prices increased by about 1.5%. Sales volumes decreased approximately 1.5% versus the prior year, which reflects the ongoing, negative economic impacts of the COVID-19 pandemic in certain end-use markets. Favorable foreign currency translation impacted net sales by about 1.5%, or about $60 million, and acquisition-related sales, added less than 1% to sales growth.
Fourth quarter 2020 reported net income was $272 million, or $1.14 per diluted share, and adjusted net income was $378 million, or $1.59 per diluted share. Adjusted figures exclude after-tax items totaling $106 million that primarily relate to asset impairment charges, including non-cash asset write-downs due to the planned sale of certain smaller entities in non-strategic developing countries, restructuring-related costs, and hurricane-related expenses. Fourth quarter 2019 reported net income from continuing operations was $295 million, or $1.23 per diluted share, and adjusted net income from continuing operations was $313 million, or $1.31 per diluted share. The fourth quarter 2020 reported and adjusted effective tax rates were approximately 19% and 21% respectively, compared to the fourth quarter 2019 reported and adjusted effective tax rates of about 24%.
“Our strong earnings momentum continued in the fourth quarter as we delivered a second consecutive quarter of record operating margins,” said Michael H. McGarry, PPG chairman and CEO. “The more than 20% increase in our adjusted EPS was the result of strengthening year-over-year sales growth in our Industrial Coatings reportable segment, led by the automotive original equipment manufacturer (OEM), general industrial and packaging coatings businesses. In addition, the global architectural coatings business continued its excellent execution as we leveraged higher year-over-year sales into strong earnings growth. Consistent with the third quarter, we achieved improved operating results despite continued weakness in several key end-use markets, including aerospace and automotive refinish coatings, which are still being heavily impacted by the ongoing pandemic.
“In addition to improving sales performance, we delivered nearly $40 million of incremental structural cost savings from business restructuring programs, bringing full-year savings to about $115 million. These permanent cost reductions will enable higher operating earnings leverage in future quarters as we experience further volume recovery from the pandemic. We also finished the year by generating record fourth quarter operating cash flow, bringing our full year total to $2.1 billion, driven by a 180 basis-point reduction in operating working capital as a percent of sales. Finally, in the past several months, we have announced several value-creating acquisitions, with each bringing differing strategic values to our portfolio.
“We continue to prioritize the health and safety of our employees while providing excellent support to our customers. I am proud of our global PPG team, and I want to thank our employees for their continued focus during these challenging times. To recognize our front-line and field workers for their outstanding commitment throughout the year, we accrued in the fourth quarter and are in the process of distributing about $6 million in bonuses in appreciation of their efforts. In addition, during the quarter, the PPG Foundation continued to provide relief support by donating about $2 million to communities in which we call home,” McGarry added.
“Looking ahead, overall global coatings demand continues to improve in many of the end-use markets we serve and across all our major regions, and we expect overall global economic activity to strengthen in the first half of 2021. However, due to increasing pandemic-related restrictions and certain supply chain disruptions, there is uncertainty regarding when this coatings demand growth will fully materialize. Regardless of timing, PPG is well positioned to benefit from a number of positives that are anticipated to occur in the coming quarters. These include sales volume recovery in our technology-advantaged automotive refinish and aerospace coatings businesses, an eventual inventory restocking in certain industrial end-use markets, and synergy realization and earnings accretion as we integrate recently announced acquisitions,” McGarry said.
“The performance we achieved in 2020 is a testament to our company’s capabilities and is truly the result of the fortitude of PPG’s global team as we work together to make it happen. I am looking forward to welcoming the employees from our acquisitions, and together I have no doubt that we are beginning 2021 as a stronger company,” concluded McGarry.
Full-Year 2020 Financial Results
Full-year 2020 reported net sales from continuing operations were approximately $13.8 billion, down about 9% versus the prior year, including unfavorable foreign currency translation of about 1%, or approximately $150 million. Organic sales were down nearly 8% versus the prior year, and acquisition-related sales added 1% to net sales.
The company’s 2020 full-year reported net income from continuing operations was about $1.1 billion, or $4.44 per diluted share, versus $1.2 billion, or $5.22 per diluted share, in 2019. Full-year 2020 adjusted earnings per diluted share from continuing operations was $5.70 compared to $6.22 in 2019. The effective tax rate from continuing operations was about 21% for 2020 versus about 24% for 2019, and the adjusted effective tax rate from continuing operations was about 22% for 2020 versus about 24% for 2019. The company’s global effective tax rate is expected to be in the range of 22% -to- 24% for the year 2021, varying by quarter. Reconciliations of the reported to adjusted figures are included below.
For 2020, the company paid about $500 million in dividends and $1.2 billion for acquisitions. Net capital expenditures totaled about $300 million, down versus the prior year reflecting the company’s decisive actions to curtail non-essential spending during the peak of the pandemic. The company had about $1.5 billion remaining on its current share repurchase authorization at year-end 2020.
In addition, the company today reported the following projections for the first quarter 2021 based on current global economic activity and in consideration of the near-term economic uncertainty associated with the impact of the pandemic:
- Aggregate year-over-year sales volumes are anticipated to be flat to slightly higher, differing by business and region, and factors in one fewer shipping day compared to the prior-year quarter, impacting many of our distribution-oriented businesses
- Total incremental structural cost benefits from restructuring actions are expected to be between $30 million and $35 million; and about $25 million of interim cost savings are expected to be sustained during the quarter
- Corporate expenses are expected to be about $60 million, which is similar to each of the first and fourth quarters of 2020
- Net interest expense is expected to be between $27 million and $29 million
- The company’s first quarter global ongoing effective tax rate is expected to be in the range of 24% to 25%
- Beginning in 2021, the company will report adjusted earnings per diluted share excluding amortization expense relating to intangible assets from completed acquisitions which, for the first quarter of 2021, is expected to be between $1.55 and $1.61. The mid-point of this range would be over 20% higher than the comparable adjusted-per-diluted-share figure for the first quarter of 2020 which was $1.31