PPG reported record first quarter 2022 net sales of US$4308 million, an 11 per cent increase over the prior year’s figure of US$3881 million. Organic sales grew around seven per cent, led by higher selling prices, while raw material costs were up 25 per cent year-over-year. Energy and transportation costs were also elevated, though certain supply disruptions moderated during the quarter.
Net income was US$18 million, 95 per cent lower than the US$378 million recorded in Q1 2021. Components of year-over-year net sales change were 10 per cent higher selling prices, three per cent lower sales volumes, a seven per cent increase in acquisition-related sales, and a three per cent decrease in unfavourable foreign currency translation. Adjusted net income was $327 million, a 27 per cent decrease on the US$450 million achieved in the corresponding period last year.
At quarter end, the company had cash and short-term investments totalling around US$1 billion. Net debt was US$6.1 billion, approximately US$600 million higher than at the end of the fourth quarter 2021. Business restructuring programmes delivered about US$12 million of cost savings.
PPG said Performance Coatings net sales increased primarily due to selling price increases across all businesses and acquisition-related sales. However, income was lower than the prior year, mainly due to raw material, logistics, and energy cost inflation, along with increased manufacturing costs and lower sales volumes. Segment margins improved on a sequential quarterly basis compared to Q4 2021.
While demand remained strong in most segment end-use markets, raw material availability continued to constrain sales in many businesses, with the largest impacts in automotive refinish, architectural coatings Americas and Asia Pacific, and traffic solutions.
Despite the headwinds, automotive refinish net sales grew by a high-single-digit percentage with higher selling prices and sales volumes that continued to outpace industry growth.
“We delivered record sales during the quarter despite ongoing supply chain disruptions along with the initial impacts of geopolitical issues in Europe and increasing COVID-19 restrictions in China,” said Michael McGarry, PPG chairman and Chief Executive Officer. “Our organic sales growth of seven per cent was driven by continued selling price realisation and above-market sales volume performance in several of our end-use markets, most notably in automotive refinish and PPG-Comex architectural coatings. On a two-year stacked basis, our selling prices are up about 12 per cent over the first quarter 2020 as we continue to manage through persistent and broad inflation. Sales also benefited from our recent acquisitions as Tikkurila and traffic solutions both delivered strong performances.
“In addition to further selling price capture, adjusted earnings exceeded our January guidance as we delivered excellent earnings leverage on higher-than-expected sales volumes. The leverage benefits were aided by sequential quarterly improvements in manufacturing performance, including the benefit of more consistent raw material availability. We once again finished the quarter with a much larger than normal order backlog, totalling about [US]$180 million [$252.85 million], primarily in automotive refinish and aerospace coatings, and we expect further volume growth in these businesses in the coming quarters.
“While supply disruptions are expected to persist, we anticipate further sequential raw material availability improvements, driven by increased supplier manufacturing capabilities and labour availability in the US, along with lower European demand. Given higher global energy prices, we are implementing further selling price increases in all businesses, and our commercial processes are enabling closer to real-time pricing relative to inflation. We are also developing further cost mitigation actions in the event of broader economic slowdowns.”
McGarry said the continuing crisis in Europe and pandemic-related restrictions in China have increased near-term economic uncertainty. Consequently, PPG’s financial guidance for the second quarter considers a wider range of potential earnings outcomes.
“I remain optimistic about the number of organic growth opportunities that we are pursuing, increased sales volumes associated with return to normal historical inventory levels in most of our end-use markets, and the expected recovery in automotive original equipment manufacturer and aerospace coatings, where we have leading global positions,” McGarry said.