PPG made record Q1 2023 net sales of almost US$4.4 billion, according to the company’s financial results for the period. Components of year-over-year net sales change are higher selling prices (up eight per cent), lower sales volumes (down three per cent), divestiture-related sales and the wind down of Russian operations (down one per cent), and unfavourable foreign currency translation (down two per cent).
Organic sales grew more than five per cent versus the prior year, led by higher selling prices. Margin recovery accelerated, with operating margins up 380 basis points year over year while operating cash flow improved by around US$400 million year-on-year.
Net income was US$264 million compared to US$18 million in Q1 2022, while adjusted net income was US$432 million, compared to US$327 million in last year’s quarter.
At quarter end, the company had cash and short-term investments totalling nearly US$1.5 billion. Net debt was US$5.8 billion, which is about US$300 million lower compared to the prior-year first quarter. Inventories rose modestly on a sequential basis ahead of historically higher seasonal sales levels.
Corporate expenses were about US$70 million – US$15 million higher than the prior year, mainly due to a higher non-cash pension expense.
Acquisition-related synergies and business restructuring programmes delivered about US$15 million of cost savings in the quarter.
“As communicated earlier this month, the pace of our operating margin recovery accelerated during the quarter, which drove a 33 per cent year-over-year increase in adjusted EPS,” said Tim Knavish, PPG President and Chief Executive Officer. “Our improving results are despite macroeconomic conditions that remain challenging and reflect the strengths of our diverse business portfolio and progress we are making on restoring margins in line with our historical profile.
“While the global demand environment generally remained consistent with our prior expectations, several businesses outperformed our original forecast and their respective markets. These include the aerospace coatings business and our Latin America region, each delivering record sales in the first quarter. In addition, our automotive original equipment manufacturer coatings business benefited from solid global production growth and remains well positioned. Finally, our latest customer win in the US architectural business provided a higher load-in benefit than originally projected.
“Our strong earnings growth was across most business units and was aided by higher incremental margins that were driven by higher selling prices, improving manufacturing efficiencies and overall cost discipline,” added Knavish. “These factors also resulted in record first quarter operating earnings in our Europe, Middle East, and Africa (EMEA) region.”
Looking ahead, PPG anticipates the macro environment will generally remain consistent with the first quarter, with continued stabilisation of economic activity (at lower absolute levels) in Europe and modestly improving demand in China. In the US, the company expects sequential slowing in economic activity in certain end-use markets, particularly those related to construction.
“Supply chain disruptions are abating, and we are already experiencing and expect further increases in commodity raw material availability,” said Knavish. “We remain highly focused on partnering with our customers and delivering superior service and products with a focus on enhancing their productivity and sustainability. Finally, along with additional organic growth, we are executing and delivering on our previously announced restructuring actions and acquisition-related synergies, which collectively will drive additional margin recovery momentum and related operating cash flow.”