Several coatings manufacturers recently released their earnings reports for the second quarter of 2024. Of those were Strategic Partner of the Commercial Painting Industry Association The Sherwin-Williams Company and CPIA Gold Members PPG and Graco Inc.
The Sherwin-Williams Company Q2 Results
On Tuesday (July 23), global coatings firm The Sherwin-Williams Company released its 2024 second-quarter financial results, reporting a mere 0.5% increase in consolidated net sales to $6.27 billion for the quarter compared to the prior year.
According to the press release, diluted net income per share increased 14.0% to $3.50 per share in the quarter compared to $3.07 per share year-over-year. Adjusted diluted net income per share also increased 12.5% to $3.70 per share in the quarter compared to $3.29 per share in 2023.
Consolidated Net sales reportedly increased primarily due to higher sales volumes in the Paint Stores and Performance Coatings Groups, partially offset by lower sales volumes in the Consumer Brands Group, inclusive of the impact from the divestiture of the China architectural business last year.
“Led by strong performance in the Paint Stores Group, we continued to execute on our proven strategy across the Company to deliver consolidated sales within our expectations, gross margin expansion, EBITDA growth, and a 12.5% percent increase in adjusted diluted net income per share,” said President and Chief Executive Officer, Heidi G. Petz.
“We generated strong cash flow and continued to execute our disciplined capital allocation strategy, including returning $1.34 billion to our shareholders through dividends and share repurchases during the year.”
Results by Segment
In the Paint Stores Group, net sales increased to $3.6 billion from $3.5 billion in the second quarter last year. The company attributes this to low-single digit sales volume growth and continued realization of higher selling prices implemented earlier in the year.
Additionally, net sales grew in all end markets, led by residential repaint, new residential, commercial and protective and marine, with the exception of property maintenance which declined modestly year-over-year.
Segment profit also increased 6.8% to $907 million from $849 million, reportedly due to higher net sales and moderating raw material costs.
“Paint Stores Group sales were up, at the midpoint of our guidance, against a double-digit comparison. Volume increased by a low-single digit percentage, and price realization increased from first quarter levels as expected,” commented Petz.
“We are clearly seeing a return on last year's growth investments in residential repaint, where volume increased by a mid-single digit percentage in a down market. We're also encouraged by growth in new residential, where we expect continued momentum over the back half of the year.”
Looking at the Consumer Brands Group, net sales decreased 10.7% to $844 million versus $945 million last year. Sherwin expects that this is due to a mid-single digit percentage sales volume decline as a result of soft DIY demand in North America, an approximate 2% impact from the divestiture of the China architectural business in 2023 and an approximate 2% impact from unfavorable currency translation.
The segment profit for the group, however, spiked 85.3% to $204 million compared to $110 million year over year. According to the company, this is due to higher fixed cost absorption in the manufacturing and distribution operations within the segment and moderating raw material costs, partially offset by lower net sales and higher employee-related costs.
“Consumer Brands Group sales continued to be impacted by soft North America DIY paint demand,” noted Petz.
Finally, net sales in the Performance Coating Group increased slight to $1.8 million compared to 2023’s $1.79 million. This is reportedly due to o incremental sales of 1.7% from an acquisition, partially offset by 1.0% unfavorable currency translation.
Segment profit for the PCG increased 10.6% to $301.5 million compared to the year prior. This was attributed to moderating raw material costs and higher Net sales, partially offset by higher employee-related costs.
“Performance Coatings Group sales were led by growth in Industrial Wood and Coil. Auto Refinish sales increased by low-single digits in North America but were offset by softness in Latin America. Packaging sales were down less than expected, and General Industrial demand was soft in all regions,” said Petz.
“Despite the continued choppiness in the overall demand environment, all three of our reportable segments delivered sequential and year-over-year margin improvement.”
Looking Ahead
Sherwin expects third quarter 2024 consolidated net sales to be up a low-single digit percentage compared to the third quarter of 2023. Petz explained that this would be a result of better than expected second quarter diluted net income per share results, tempered by continued demand uncertainty in several end markets.
Additionally, the company anticipates Q4 consolidated net sales to be up a low-single digit percentage compared to full year 2023 and diluted net income per share to be in the range of $10.30 to $10.60 per share, including acquisition-related amortization expense of $0.80 per share, compared to $9.25 per share in 2023.
“The macroeconomic environment has been softer for longer than many economists anticipated at the start of the year, and it is unclear how this trajectory may unfold in our back half. While we are not immune to market conditions, our focus on providing differentiated solutions to drive our customers' productivity and profitability remains unchanged,” said Petz.
“We believe in our strategy, we've invested in it, and we expect to drive above market performance. Sherwin-Williams remains well-positioned in each of our targeted markets, and we expect share gains to become more evident over time. We have the right enterprise priorities, disciplined capital allocation, a team that executes better than anyone in our industry, and favorable demand demographics that continue to bode well for long-term value creation.”
PPG 2024 Q2 Financial Report
Global coatings company PPG released its second-quarter earnings report late Thursday (July 18), reported net sales of $4.8 billion, a slight dip of 2% compared to last year. Net income for the second quarter came in at $528 million with adjusted net income landing at $590 million.
PPG also reported record earnings per diluted share (EPS) of $2.24 and adjusted EPS of $2.50. Organic sales were flat versus the year prior.
“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,” commented Tim Knavish, PPG Chairman and Chief Executive Officer.
“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.”
Results by Segment
In the Performance Coatings segment, PPG reported $3.04 billion in net sales, remaining flat compared the same period last year. Segment income came in at $570 million, compared to $537 million in 2023.
Within the Performance Coatings segment, the company noted that 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 reportedly remained strong, as the company delivered double-digit percentage organic sales growth year over year. However, in general, 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.
Organic sales for architectural coatings Europe, Middle East and Africa reportedly decreased by a low single-digit percentage with lower sales volumes across western Europe, which offset growth in central and eastern Europe.
The Industrial Coatings segment’s net sales decreased by 5%, totaling $1.75 billion compared to $1.83 billion year-over-year. Segment income landed at $259 million, a mere 4% higher compared to $250 million this time last year. This was primarily driven by lower selling prices from certain index-based customer contracts and unfavorable foreign currency translation, PPG says.
Automotive original equipment manufacturer (OEM) coatings organic sales reportedly 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.
Additionally, 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, the release adds.
Looking Ahead
The company also reported 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. In both Q3 and full-year, PPG anticipates flat to up low single digits growth in organic sales.
“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,” continued Knavish.
“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.”
Graco Inc. Q2 Results
Last week, equipment manufacturer Graco Inc. released its second-quarter financial results for the year, reporting a 4% decrease from the comparable period last year. According to the release, net sales increased 5% in the Americas, decreased 6% (5% at consistent translation rates) in the EMEA region and decreased 18% (16% at consistent translation rates) in the Asia Pacific region. Net sales for the first quarter, which ended on June 28, decreased 1% from the same period last year.
The gross profit margin rate for the quarter was reported to slightly improve from the second quarter of last year by 2 percentage points and 1 percentage point for the year to date. This was reportedly due to lower product costs and realized price increases.
Total operating expenses for the quarter increased $5 million (4%) compared to last year, including $3 million of expenses associated with the relocation to a new distribution center and $2 million related to product development, growth initiatives and other corporate items.
Additionally, year-to-date operating expenses increased $10 million (4%) compared to the first half of last year. The increase reportedly included $5 million related to product development, growth initiatives and other corporate items, $3 million associated with the distribution center relocation and $2 million of incremental share-based compensation.
“Strength in the Contractor segment this quarter was not enough to offset declines elsewhere, resulting in overall sales performance that was below our expectations,” said Mark Sheahan, Graco's President and CEO. “New product introductions in Contractor were well-received and led to sales growth. Declines in Asia Pacific were driven largely by the China market, where softening demand is negatively impacting our sealant and adhesives, powder coating equipment and semiconductor businesses. Operating earnings performance was strong for the quarter with an expansion of more than 100 basis points when compared to our second quarter last year.”
Results by Segment
In the Contractor Segment, net sales at the end of the three-month period came in at $269.6 million. According to Graco, favorable response from new product offerings led to a 5% increase in net sales for the second quarter in this segment.
Net sales were flat for the year to date as favorable response from new product offerings offset softness in worldwide construction markets. The operating margin rate reportedly increased 4 percentage points for the quarter driven by lower product costs and price realization.
For the Industrial Segment, net sales end of the three-month period totaled $155.7 million, a decrease of 5% for the second quarter and year to date. The company attributes this to growth in the Americas was more than offset by double-digit declines in Asia Pacific. The operating margin rate was also flat for the quarter and decreased 2 percentage points for the year to date.
The Process Segment net sales reached $127.9 million for the second quarter, decreasing 9% for both the second quarter and year to date, as sales decreased in most product applications. Weakness in the semiconductor and industrial lubrication product applications was notable for both the quarter and year to date. The operating margin rate reportedly decreased approximately 2 percentage points for the quarter and year to date due primarily to unfavorable expense leverage on lower sales volume.
