PPG has told investors that demand for automotive refinishing products is improving following the release of its fourth quarter and year end 2022 results.
“[Company] sales were aided by our strong US automotive refinish volume growth as supply chain disruptions started to moderate and our order books remained robust,” said Tim Knavish, Chief Operating Officer of PPG.
Automotive refinish coatings organic sales grew by a low double-digit percentage driven by higher selling prices and sales volumes, despite significant impacts to demand in China due to pandemic-related disruptions.
Overall, fourth quarter net sales were US$4.2 billion, up five per cent in constant currencies, driven by higher selling prices. Net income dropped 11 per cent to US$267 million with adjusted net income down four per cent to US$298 million.
Acquisition-related synergies and business restructuring programmes delivered about US$20 million of cost savings in the quarter.
Full-year 2022 reported net sales from continuing operations were approximately US$17.7 billion, up about five per cent versus the prior year. Organic sales were higher by eight per cent, driven by higher selling prices. Net income decreased 28 per cent versus 2021 to US$1.028 billion, due to raw material cost inflation, lower sales volumes, unfavourable foreign-currency translation, and higher manufacturing costs related to supply and labour disruptions, partially offset by higher selling prices, restructuring cost savings, and acquisition-related synergies. Adjusted net income fell 11 per cent to US$1.436 billion.
At year end, the company had cash and short-term investments totalling nearly US$1.2 billion. Net debt was US$5.7 billion, which was comparable to the prior year end. Inventories were higher year over year but declined sequentially in comparison to the third quarter 2022 due to destocking initiatives that are expected to continue into 2023.
In 2022, the company paid US$570 million in dividends. Capital expenditure was about US$520 million, which was higher than the prior year due to more normalised spending. The company had about US$1 billion remaining on its current share repurchase authorisation at the end of 2022.
“We continued to make good progress on our focus to achieve full operating margin recovery, as year-over-year earnings improved in both segments despite more acute pandemic-related demand disruptions in China. This earnings improvement was driven by aggregate selling price increases that totalled 19 per cent on a two-year stacked basis, as we remained focused on mitigating the significant cumulative cost inflation incurred [over] the past two years,” said Knavish.
“Overall sales volumes declined five per cent year-over-year as manufacturing activity slowed in most regions, including Asia Pacific where volumes were down a low double-digit percentage primarily due to the pandemic-related impacts in China.”
According to Knavish, European aggregate industrial activity weakened sequentially, and sales volumes were down a mid-single-digit percentage, but quarterly operating earnings in the region were consistent with prior-year levels, driven by strong price realisation and cost management.
Looking ahead, Knavish says PPG remains highly focused on building further momentum to restore margins in line with the company’s historical profile.
“In the first quarter, we will continue to prioritise supporting our customers through superior service and products, executing our cost-savings initiatives, and optimising inventory. We expect the overall demand environment to remain consistent sequentially with the fourth quarter with soft economic activity remaining in Europe and China,” he said.
“However, as the year progresses, we anticipate several positive catalysts that will enable earnings improvement, including certain PPG commercial initiatives with our valued customers and the continued rebound in demand for our technology-advantaged aerospace products. Other catalysts include moderating raw material costs, coatings demand stabilisation in Europe beginning in the second quarter, and strong economic recovery in China as the pandemic re-opening progresses.
“Finally, with fewer supply chain disruptions, we expect ample commodity raw material availability and improved manufacturing efficiencies.”