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PPG: First Quarter 2016 Reportable Segment Financial Results

The following excerpt is from the company's SEC filing.

Performance Coatings segment first quarter net sales were $2.04 billion, down $16 million, or less than one percent, versus the prior-year period. Sales in local currencies were up more than 3 percent year-over-year, primarily due to acquisition-related sales of about $25 million, or approximately one percent, and higher sales volumes of approximately one percent. Unfavorable foreign currency translation impacted net sales by about 4 percent, or about $85 million. Organic sales expansion continued in automotive refinish coatings, reflecting higher end-use customer demand, particularly in the U.S. and Asia. Sales vol ume growth accelerated in architectural coatings - EMEA (Europe, Middle East, and Africa), advancing by a low single-digit percentage, as growth rates increased in several Western European countries. Architectural coatings - Americas and Asia Pacific organic sales were up modestly, as increases in Mexico and the U.S. were partially offset by lower demand in certain Canadian markets and persistent weakness in South America. Protective and marine coatings sales volumes were consistent with the prior year, as increases in protective coatings were countered by weakness in the marine end-use market. Aerospace sales volumes declined by

a low single-digit percentage, primarily due to lower commercial demand stemming from a continuation of customer inventory management. Segment income for the first quarter was $279 million, up $17 million, or more than 6 percent, year-over-year. A continued cost-management focus, including increased benefits from business restructuring, and acquisition-related income were key drivers in segment income improvement, and they more than offset approximately $15 million of incremental growth-related spending at major national accounts in architectural coatings U.S. and Canada. These costs, related to new product launches and other growth initiatives, were consistent with previously communicated expectations and are not expected to recur in future quarters. Foreign currency translation negatively impacted segment income by about $10 million.

Industrial Coatings segment first quarter net sales were $1.37 billion, up $32 million, or about 2 percent, versus the prior-year period. Sales in local currencies were up more than 6 percent due to acquisition-related sales of approximately $85 million, or about 6 percent, and sales volume growth of more than one percent. Unfavorable foreign currency translation impacted net sales by almost 4 percent, or about $50 million. Automotive original equipment manufacturer (OEM) coatings sales volumes were in line with the prior year, reflecting global automotive industry production that advanced slightly year-over-year, and in comparison to robust prior-year growth that included double-digit percentage gains in Asia. Industrial coatings and specialty coatings and materials delivered modest year-over-year sales volume growth, an improvement versus recent quarters, led by expansion in Europe and certain end-use market improvements in the U.S. and Canada. Packaging coatings continued to deliver above-industry growth rates, as sales volumes increased by a mid-to-high single-digit percentage in each region, driven primarily by new-technology-related customer conversions. Segment income for the quarter was $265 million, up $21 million, or about 9 percent, year-over-year. This income improvement was due to lower costs, which included manufacturing cost efficiencies and increasing benefits from business restructuring, along with acquisition-related income. Foreign currency translation negatively impacted segment income by approximately $5 million.

Glass segment net sales were $261 million for the first quarter, down $6 million, or 2 percent, versus the prior-year period. The decrease in sales was due to lower sales volumes, unfavorable foreign currency translation, and lower sales stemming from the sale of a flat glass manufacturing facility, partially offset by improved selling prices. Flat glass industry demand remained solid, but PPG sales volumes declined primarily due to a scheduled facility outage. Fiber glass sales volumes were down modestly, as European growth was offset by lower U.S. demand. Segment income of $28 million was down $2 million versus the prior year, primarily due to $8 million of repair and facility outage expenses, lower sales volumes and lower equity earnings from Asian joint ventures, partially offset by improved selling prices and strong cost management.


At PPG (NYSE:PPG), we work every day to develop and deliver the paints, coatings and materials that our customers have trusted for more than 130 years. Through dedication and creativity, we solve our customers’ biggest challenges, collaborating closely to find the right path forward. With headquarters in Pittsburgh, we operate and innovate in more than 70 countries and reported net sales of $15.3 billion in 2015. We serve customers in construction, consumer products, industrial and transportation markets and aftermarkets. To learn more, visit

Additional Information

PPG will provide detailed commentary regarding its financial performance, including presentation-slide content, on the

PPG Investor Center at

at 1 p.m. ET today, April 21. The company

will hold a conference call to review its first quarter 2016 financial performance today at 2 p.m. ET. Participants can ask to join the PPG earnings call at these dial-in numbers: in the United States, 866-777-2509; international, +1-412-317-5413. The conference call also will be available in listen-only mode via Internet broadcast from the

(Windows Media Player). A telephone replay will be available today, April 21, beginning at approximately 4:30 p.m. ET, through May 6 at 11:59 p.m. ET. The dial-in numbers for the replay are: in the United States, 877-344-7529; international, +1-412-317-0088; passcode 10083513. A Web replay also will be available on the

, beginning at approximately 4:30 p.m. ET today, April 21, 2016, through April 19, 2017.

Forward-Looking Statements

Statements contained herein relating to matters that are not historical facts are forward-looking statements reflecting PPG’s current view with respect to future events and financial performance. These matters within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, involve risks and uncertainties that may affect PPG’s operations, as discussed in PPG’s filings with the Securities and Exchange Commission pursuant to Sections 13(a), 13(c) or 15(d) of the Exchange Act, and the rules and regulations promulgated thereunder. Accordingly, many factors could cause actual results to differ materially from the forward-looking statements contained herein. Such factors include global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, the timing of realization of anticipated cost savings from restructuring initiatives, difficulties in integrating acquired businesses and achieving expected synergies therefrom, economic and political conditions in international markets, the ability to penetrate existing, developing and emerging foreign and domestic markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions, and the unpredictability of existing and possible future litigation, including litigation that could result if the asbestos settlement discussed in PPG’s filings with the Securities and Exchange Commission does not become effective. However, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here and in PPG’s 2015 Form 10-K are considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Consequences of material differences in results compared with those anticipated in the forward-looking statements could include, among other things, lower sales or earnings, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on PPG’s consolidated financial condition, results of operations or liquidity. All information in this release speaks only as of April 21, 2016, and any distribution of this release after that date is not intended and will not be construed as updating or confirming such information. PPG undertakes no obligation to update any forward-looking statement, except as otherwise required by applicable law.

Regulation G Reconciliation

PPG believes investors’ understanding of the company’s operating performance is enhanced by the disclosure of net income, earnings per diluted share and the effective tax rate adjusted for nonrecurring charges. PPG’s management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis. Net income and earnings per diluted share adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered a substitute for net income or earnings per diluted share or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, earnings per diluted share and the effective tax rate may not be comparable to similarly titled measures as reported by other companies.

The following is a reconciliation of reported and adjusted net income, earnings per diluted share, and the effective tax rate for the first quarter:

Regulation G Reconciliation - Net Income and Earnings per Diluted Share

($ in millions, except per-share amounts)

First Quarter

Reported net income from continuing operations

Transaction-related costs

Asset write-down

Adjusted net income, excluding non-recurring items

Income Before Income Taxes

Tax Expense

Effective Tax Rate

Effective tax rate, continuing operations

Adjusted effective tax rate, continuing operations



(All amounts in millions except per-share data)

Three Months Ended

March 31

Net sales

Cost of sales, exclusive of depreciation and amortization

Selling, R&D and administrative expenses



Interest expense

Interest income

Asbestos settlement - net

Other charges/(income) - net


Income tax expense

Income from continuing operations, net of income taxes

Income from discontinued operations, net of income taxes

Net income attributable to the controlling and noncontrolling interests

Less: Net income attributable to noncontrolling interests


Amounts attributable to PPG:

Net income (attributable to PPG)

Earnings per common share (attributable to PPG)

Earnings per common share (attributable to PPG) - assuming dilution

Average shares outstanding

Average shares outstanding - assuming dilution


The condensed statements of operations include the impact of items that are not expected to recur ("non-recurring items") on a quarterly basis. The tax benefit related to these items are as follows:

($ in millions)

Income tax expense on pre-tax income from continuing operations includes tax benefits related to the following:


December 31

2015 (a)

Current assets:

Cash and cash equivalents

Short-term investments

Receivables - net


Total current assets

Current liabilities:

Short-term debt and current portion of long-term debt

Accounts payable and accrued liabilities

Total current liabilities

Long-term debt

(a) Certain reclassifications of prior year data have been made to conform to the current year presentation to reflect the adoption of accounting standard updates issued in 2015.


Operating Working Capital (a)

As a percent of quarter sales, annualized

(a) Operating working capital includes: (1) receivables from customers, net of allowance for doubtful accounts, (2) FIFO inventories and (3) trade liabilities.


Items not allocated to segments


Interest expense, net of interest income

Legacy items (Note A)


Note A:

Legacy items include current costs related to former operations of the company, including pension and other postretirement benefit costs, certain charges for legal matters and environmental remediation costs, and certain charges that are considered to be unusual or nonrecurring including the earnings impact of the proposed asbestos settlement. Legacy items also include equity earnings from PPG's investment in the former automotive glass and services business.

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The above information was disclosed in a filing to the SEC. To see the filing, click here.

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