PPG reported financial results for the second quarter 2023.

Net sales were $4,872 million, up 4% from 2022’s second quarter. Net income was $490 million, up 11%. Adjusted net income was $534 million, an increase of 24%.

Tim Knavish, PPG president and chief executive officer, commented on the quarter:

“The PPG team delivered record sales and earnings in the second quarter driven by our diverse portfolio. While overall global industrial demand was lackluster, several of our technology-advantaged businesses and leading brands once again delivered strong growth. In particular, the aerospace, automotive original equipment manufacturer (OEM), automotive refinish coatings and PPG Comex businesses all achieved record sales during the quarter.

“We made excellent progress in restoring operating margins toward our prior historical profile, as we sharply improved year-over-year segment margins by 330 basis points. Additionally, we demonstrated one of our long-standing legacies of strong cash generation with record operating cash flow for the first half of the year, and we are targeting further working capital improvements in the second half of the year, specifically in raw materials inventory. 

“Looking ahead, we anticipate that the global macroeconomic environment will remain generally consistent with the second quarter including continued tepid global industrial production, along with some incremental slowing in U.S. architectural residential repaint due to significantly lower existing home sales. Given the strength and momentum we have experienced year to date in several of our businesses, such as aerospace coatings and automotive OEM coatings, we expect our diverse portfolio mix to provide us with continued resiliency. On a regional basis, we anticipate modest sequential demand improvement in China and aggregate European demand to stabilize, albeit at current lower absolute levels. In addition, our supply chain and raw material availability has returned to pre-pandemic levels, and in some instances there is excess supply.

“As I mentioned at my CEO investor briefing in May, we remain highly focused on our enterprise growth strategy and partnering with our customers to deliver superior service and products with a focus on enhancing their productivity and sustainability. As a result, we expect to achieve more customer success in subsequent quarters. Lastly, PPG will mark its 140th anniversary in August, a strong testament to the dedication of PPG team members around the world who support our heritage of delivering value to our customers every day.”

Performance Coatings Segment

Performance Coatings net sales were $3,041 million, increasing by 4%, led by higher selling prices in all businesses and favorable foreign currency translation that more than offset lower sales volumes.

Demand for PPG’s technology-advantaged aerospace products remained robust across all product categories as the business delivered record sales aided by low-teen percentage sales volume growth year over year.

PPG Comex delivered another record quarter and continues to benefit from a growing Mexican economy and its well-established brand. Organic sales in the U.S. architectural coatings business were solid in the professional paint channel, especially for non-residential activity, but offset by continuing soft do-it-yourself demand.

As expected, demand for architectural coatings in Europe remained at lower levels with sales volumes down about 10% on a year-over-year basis due to reduced remodeling activity and weak regional consumer confidence. Automotive refinish coatings organic sales increased by a mid-single-digit percentage led by higher global selling prices and sales volume growth in the U.S. where demand approached pre-pandemic levels.

Organic sales in the protective and marine coatings business improved by a high single-digit percentage, with solid contributions from higher selling prices and sales volumes compared to the second quarter of 2022.

Segment income increased by 20% versus the prior year primarily due to higher selling prices and moderating input costs, which more than offset the impact of lower sales volumes. Segment operating margins improved by approximately 250 basis points year over year.

Industrial Coatings Segment

Industrial Coatings net sales were $1,831 million, up 4%, with increaseds primarily driven by higher selling prices across all businesses, partially offset by lower sales volumes.

Automotive OEM coatings organic sales were higher by a mid-teen-percentage with solid growth in all major regions from increases in both sales volumes and selling prices. While global industry growth rates have improved in the first half of 2023, they remain well below pre-pandemic levels.

Industrial coatings organic sales declined a mid-single-digit percentage as solid selling price realization was more than offset by lower sales volumes due to soft global industrial production. Packaging coatings organic sales were lower by a mid-single-digit percentage as higher selling prices were more than offset by lower sales volumes due to soft demand in each major region and most product categories.

Segment income was higher than the prior year by $94 million, or 60%, primarily due to higher selling prices and moderating raw material costs. Segment margins improved by 470 basis points compared to the second quarter 2022.

Additional Financial Information

• At quarter end, the company had cash and short-term investments totaling nearly $1.3 billion. Net debt was $5.6 billion, which is about $500 million lower compared to the prior-year second quarter.
• Inventories decreased on a sequential basis but remain above targeted and historic levels.
• Corporate expenses were $85 million in the second quarter, which was $30 million higher than the prior year, primarily due to stock-based compensation associated with total shareholder return and other performance-based incentive compensation, along with previously noted non-cash pension expense.
• Acquisition-related synergies and business restructuring programs delivered about $15 million of incremental cost savings in the quarter.

Outlook

The company is raising its adjusted EPS guidance for full-year 2023. The following projections take into consideration current global economic activity, soft global industrial production, continued economic uncertainty associated with the impacts of geopolitical issues in Europe and higher interest rates in most developed countries.