Yahoo Finance PPG Industries, Inc. (NYSE:PPG) Q1 2024 Earnings Call Transcript
PPG Industries, Inc. (NYSE:PPG) Q1 2024 Earnings Call Transcript April 19, 2024
PPG Industries, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter PPG Earnings Conference Call. All line have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Jonathan Edwards, Director of Investor Relations. Please go ahead, sir.
Jonathan Edwards: Thank you, Angela, and good morning, everyone. This is Jonathan Edwards. We appreciate your continued interest in PPG and welcome you to our first quarter 2024 financial results conference call. Joining me on the call from PPG are Tim Knavish, Chairman and Chief Executive Officer, and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Thursday, April 18th, 2024. We have posted detailed commentary and accompanying presentation slides on the Investor Center of our website, ppg.com. The slides are also available on the webcast site for this call and provide additional support to the opening comments Tim will make shortly.
Following management's perspective on the company's results for the quarter, we will move to a Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
For additional information, please refer to PPG's filings with the SEC. And now, let me introduce PPG Chairman and CEO, Tim Knavish.
Timothy Knavish: Thank you, Jonathan, and good morning, everyone. Welcome to our first quarter 2024 earnings call. I'd like to start by providing a few highlights on our first quarter 2024 financial performance, and then I'll move to our outlook. The PPG team delivered sales of $4.3 billion, a solid sales performance despite a very challenging macroenvironment, and we delivered our sixth consecutive quarter of year-over-year segment margin increases. This culminated in first quarter adjusted earnings per diluted share of $1.86, which is $0.02 above the midpoint of the range that we provided in January. This is also our second best Q1 adjusted EPS in the company's history, falling just $0.02 short of the record achieved during the early COVID surge in house paint sales.
Our first quarter adjusted EPS was once again up year-over-year, with moderating input costs and improving manufacturing performance, mitigated by lower sales volumes and higher wage and benefit costs. As we indicated in January, we had a large customer win last year at Walmart and a significant portion of lower volumes year-over-year was driven by this prior year $40 million load in. We're also impacted by lower demand in Europe, including the effect of fewer selling days in March stemming from an early Easter holiday this year. We also experienced ongoing tepid global industrial production. Adjusting for these year-over-year comparison items, volumes were nearly flat, continuing the underlying positive volume trajectory over the last five quarters.
As I'll discuss in our outlook, I fully expect positive sales volumes in Q2. A benefit for us during the quarter was China, where despite a challenging general economy, our portfolio delivered double-digit organic sales growth, reflecting our strong mix of well established businesses in the country. For PPG, India also grew by double digits in the quarter. In addition, our commercial teams executed well and drove solid global organic sales growth in our aerospace, specialty coatings and materials, and protective and marine coatings businesses. Our selling prices were flat with positive pricing in the Performance segment offsetting lower pricing in the Industrial segment. First quarter pricing comparisons include a transitory unfavorable impact from European energy related pricing indices that were put in place during a period of extremely high energy prices in that region in the first quarter of 2023.
We experienced lower energy input costs in the quarter to offset this lower index-based pricing. We expect total company selling prices to be slightly positive overall in 2024 as targeted structural selling price increases have been implemented in several of our Performance segment businesses, offsetting some index based pricing contracts in the Industrial segment. Our operations have benefited from further improvement as we experienced stable upstream and downstream supply chains and customer order patterns. From a supply perspective, the vast majority of our suppliers have sufficient or excess capacity as we continue to experience moderating input costs. This is noteworthy as we are just entering the peak buying period due to the overall seasonality of the paint industry.
We also increased our growth-related investments, supporting initiatives that will deliver volume gains later this year and going forward. Building off of the full year 310 basis point improvement in total segment margins in 2023, further margin improvement remains a priority in 2024. This will be driven by stronger sales volumes as the year progresses, improved manufacturing productivity, and moderating input costs from historical highs. Specifically on manufacturing productivity, our improved operating cadence will be more financially impactful during our peak seasonal quarters as we deliver additional volume growth. In the first quarter, we delivered on our margin improvement commitment with the Industrial segment margins improving by 100 basis points versus prior year and the Performance Coatings businesses margins were also up by about 40 basis points as favorable pricing and moderating input costs were mitigated by lower volumes and higher wage inflation.
From a cash perspective, we expect another year of excellent cash flow and our balance sheet remains strong, including lower inventories year over year. We'll continue to follow our legacy of utilizing our strong cash flow and balance sheet to create shareholder value. In the first quarter, we repurchased approximately $150 million of PPG stock, reflecting our commitment to use excess cash to create shareholder value. Additionally, yesterday, our Board of Directors increased our share buyback authorization by an additional $2.5 billion, bringing our total share repurchase authorization to approximately $3.4 billion. I'm pleased with the progress we've made on our enterprise growth initiatives. We executed strong growth from selling our innovative products into the mobility space and continued to further utilize our world-class distribution of 5,200 concessionaire locations in Mexico to drive additional non-architectural coatings products into one of the world's fastest-growing economies.
In automotive refinish, customer adoption of our industry-leading digital tools increased, yielding nearly 400 additional net body shop wins. These digital tools include our LINQ services and MoonWalk mixing machines, both of which are best-in-class and are focused on improving body shop productivity. To date, we've sold over 2,000 MoonWalk mixing machines and approximately 2,700 LINQ subscriptions. We announced strategic reviews of the architectural U.S. and Canada business and the global silicas product business in the first quarter. Strategically, we are driving this portfolio optimization with a goal of transforming to a higher-growth, higher-margin company. As an example, excluding the architectural coatings business in the U.S. and Canada, Performance Coating segment margins would be an average of 200 basis points to 300 basis points higher than the last several years.
We'll communicate a determination of a path forward on these strategic assessments when appropriate, with our target of no later than the third quarter. Now, I'll comment on our second quarter outlook. We expect to deliver adjusted Q2 EPS between $2.42 and $2.52 per share, which at the midpoint would be 10% higher than our previous record quarterly EPS. While we anticipate global industrial production to remain at low absolute levels and demand to be uneven by geography, we expect our overall second quarter sales volumes to be positive by a low single-digit percentage, aided by organic growth in aerospace, protective and marine, and our share gains in packaging coatings. We project continuing solid growth from our businesses in China, our third largest country for sales, led by our automotive OEM business where our strong positioning with electric vehicle OEM producers will drive further sales.
Additionally, we expect to deliver further sales growth in Mexico, our second largest country for sales, leveraging our strong position across many businesses as well as our world-class distribution network. We are confident that PPG's unique geographic profile with strong and growing positions in China, Mexico, and India, along with stabilization and eventually modest growth in Europe, and the continued improvements in the U.S., will support PPG's consistent sales volume growth as we move forward. We anticipate overall company selling prices to be flat to slightly positive in the second quarter as the impact of index-based contracts in our Industrial segment will be offset by selling price increases in our Performance Coating segment. There's still some unfavorable pricing impact and offsetting energy input cost benefits from prior year European energy surcharges, but it's less than the first quarter.
With regard to commodity raw materials, supply remains ample, and we will continue to realize benefits from moderating input costs. We expect mid-single-digit percentage raw material deflation in the second quarter following the realization of high-single-digit percentage decreases in Q1. We're watching oil price and feedstock volatility, and we will manage any impact accordingly, although we expect that recent oil price increases will be absorbed upstream. Looking at the remainder of 2024, we remain confident that we will deliver positive sales volumes in each remaining quarter in 2024, including our growth in China and India. We'll also execute on our more than $270 million and growing order backlog in aerospace, driving further growth in our well-positioned businesses in Mexico and driving expanded benefits of our key growth initiatives across electric vehicle, auto parts, powder coatings, and various digital solutions.
PPG remains focused on our enterprise growth initiatives to drive higher sales volumes and fully capitalize on our technical and service capabilities. We'll drive further improvement of our operating margins aided by sales volume growth leverage and our initiatives to drive manufacturing productivity following several years of supply chain and other disruptions, and we will diligently manage our costs and continue to execute against previously approved restructuring actions. Lastly, we entered the second quarter of 2024 with a strong balance sheet, which provides us with flexibility for further shareholder value creation. Thank you to our more than 50,000 employees around the world who partner with our customers every day to drive mutual success by providing best-in-class paints, coatings, specialty materials, including productivity enhancing and sustainable solutions.
Thank you for your continued confidence in PPG. This concludes our prepared remarks. And now would you please open the lines for questions?
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