PPG has begun a series of cost cutting measures it blames on weakened global economic conditions from the COVID-19 pandemic and the related pace of recovery in some countries, and it includes a voluntary employee redundancy programme in the US and Canada.
The company expects it will deliver US$160 to US$170 million in annual pre-tax cost savings, with around US$25 to US$35 million of savings projected this year after the cuts. PPG believes the remainder of the savings will be substantially achieved by the end of 2021.
“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, Chairman and CEO of PPG. “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 says it will record a restructuring charge of US$160 to US$180 million pre-tax, US$125 to US$140 million after-tax, or US$0.52 to US$0.58 cents per diluted share, in the second quarter of 2020, which is nearly all related to employee severance. The company will also incur other associated restructuring-related costs of around US$10 million over future quarters. The total cash sum to complete these actions is approximately US$180 million, with about US$110 million expected in 2020 and the remainder in 2021. The total includes capital expenditures to relocate certain operational activities.
The company says the aggregate impact and pace of recovery falls in line with its expectations, which it noted in its 28 April earnings teleconference. In aggregate, company sales volumes were lower against the previous year in April by approximately 35 per cent. The company saw continued improvement throughout May, with aggregate monthly sales down less than 30 per cent versus 2019.
PPG will provide more details during its second quarter earnings update in July.