PPG reported financial results for the second quarter 2024.

Second Quarter Consolidated Results

Chairman and CEO Comments

Tim Knavish, PPG Chairman and Chief Executive Officer, commented on the quarter:

"PPG delivered strong financial results in an increasingly challenging macro-environment. We achieved record reported EPS and adjusted EPS and grew year-over-year adjusted EPS by 11%, marking the sixth consecutive quarter of growth.

Overall organic sales were flat, but grew in many of our businesses, including aerospace coatings, packaging coatings, architectural coatings Americas and Asia Pacific, traffic solutions and specialty coatings and materials. This growth was offset by global automotive builds that weakened as the quarter progressed and global industrial production which remained soft. Also, refinish coatings sales were down year over year reflecting a comparison to record prior year results and uneven distributor order patterns.

Overall European year-over-year sales volume comparisons improved sequentially versus the first quarter, but sales volumes remained unfavorable and were below our initial expectations. Our financial results continued to benefit from our well-established businesses in Mexico and China, our second and third largest countries based on revenue.

We built on our segment margin growth momentum as aggregate segment margins improved 110 basis points, which marks the seventh consecutive quarter of year-over-year improvement. Also, our gross margins improved by 180 basis points year over year. Our balance sheet remains strong, including lower inventories year over year, and we remain committed to utilizing cash for shareholder value creation. For the third consecutive quarter we repurchased shares, with approximately $150 million repurchased in the quarter and about $300 million year to date.

Looking ahead, we expect strong momentum in Mexico. We believe that demand in China for PPG technology-advantaged products will deliver continued organic growth, albeit at lower growth rates than achieved in the first half of the year. In Europe, demand remains uneven by country and end use, but we expect to realize modest sequential year-over-year improvement. In the U.S., economic conditions have remained subdued in several end-use markets, but we expect overall improvement as the second half of the year progresses.

As we execute on various enterprise growth initiatives and capitalize on our technical and service capabilities, we expect positive momentum in driving improved sales volumes will broaden within our business portfolio. In addition to those businesses that grew in the second quarter, we expect organic growth in automotive refinish coatings and protective and marine coatings. Also, while still slightly unfavorable year over year, we are projecting modest sequential quarterly improvement in general industrial demand. As a result, in the third quarter we are projecting flat-to-low single-digit percentage aggregate organic sales growth.

The strategic reviews of the architectural coatings U.S. and Canada business and the global silicas business that were announced in the first quarter are progressing. We are diligently working toward and remain on schedule to determine paths forward as a result of each of these reviews.

Our more than 50,000 employees continue to be dedicated to delivering growth for PPG. Our record results this quarter were made possible by our PPG team around the world who make it happen and deliver on our purpose every day: We protect and beautify the world^®."

Second Quarter 2024 Reportable Segment Financial Results

Performance Coatings Segment

Performance Coatings net sales were flat, as higher selling prices were offset by the divestitures of the non-North American portion of the traffic solutions business and unfavorable foreign currency translation.

Sales of PPG’s aerospace products remained strong, as the business delivered double-digit percentage organic sales growth year over year, while the order backlog increased to approximately $290 million. Protective and marine coatings organic sales were flat as growth in Europe and the Asia Pacific region was offset by lower sale volumes in other regions. Organic sales for architectural coatings Americas and Asia Pacific were higher by a low single-digit percentage, supported by sales volume growth in the professional contractor segment in the U.S. and Canada. In Mexico, architectural coatings delivered record sales and earnings as we continue to benefit from a strong Mexican economy and our world-class distribution network in the country. Organic sales for architectural coatings Europe, Middle East and Africa decreased by a low single-digit percentage with lower sales volumes across western Europe, which offset growth in central and eastern Europe. As expected, automotive refinish coatings organic sales were lower by a mid-single-digit percentage, as a challenging prior-year comparison and uneven distributor order patterns in the U.S. offset solid growth in Asia and Europe.

Segment operating margins of 18.7% were a second quarter record and increased by 100 basis points year over year. Segment income increased by 6% versus the prior year primarily due to improved selling prices partially offset by higher growth-related spending.

Industrial Coatings Segment

Industrial Coatings segment net sales were lower compared to the second quarter 2023 due to lower selling prices from certain index-based customer contracts and unfavorable foreign currency translation.

Automotive original equipment manufacturer (OEM) coatings organic sales decreased by a high single-digit percentage due to lower index-based selling prices and lower U.S. and European industry volumes, partly offset by above-market PPG growth in Mexico and moderated growth in China. Industrial coatings organic sales declined by a low single-digit percentage with subdued industrial activity in the U.S. and Europe more than offsetting solid PPG growth in China and India. Packaging coatings organic sales were up a mid-single-digit percentage year over year with solidly higher sales volumes stemming from PPG share gains mitigated by lower selling prices.

Segment margins improved by 110 basis points compared to the second quarter 2023. Segment income was 4% higher than the prior year as input costs moderated. These net benefits more than offset the impact from lower selling prices based on certain index-based pricing contracts and wage cost inflation.

Additional Financial Information

• At quarter end, the company had cash and short-term investments totaling $1.2 billion. Net debt was $5.2 billion, down $0.4 billion from the second quarter 2023.
• Corporate expenses were $69 million in the second quarter, which was $16 million lower than the prior year, as lower incentive-based compensation and cost savings initiatives were partially offset by general inflation.
• Net interest expense was $17 million in the second quarter.
• The effective tax rate was approximately 23% in the second quarter.

Outlook

The company today reported the following projections for the third quarter and full-year 2024 based on current global economic activity, continued uneven global industrial production, lower global automotive production, uneven but stabilizing demand in Europe, continued growth in Mexico and India, and low single-digit growth in China.

The effective tax rate for the third quarter 2024 is expected to be between 23.5% to 24.5%, higher than the prior year adjusted rate of 19.5%, including the impact of several regional tax rate increases, the expected mix of country-specific earnings and the absence of certain prior year favorable discrete tax items.

Additional information related to 2024 financial projections are available in the detailed commentary and associated presentation slides related to the second quarter financial information, which are posted within the Investors section of PPG.com.

The term organic sales as used in this press release is defined as net sales excluding the impact of currency, acquisitions and divestitures.