Coatings Companies Share Q1 2024 Financials

The Sherwin-Williams Company Q1 Results

  Global coatings firm The Sherwin-Williams Company announced its 2024 first-quarter financial results, highlighting a 1.4% net sales decrease year-over-year to $5.37 billion. The coatings manufacturer adds that net sales from stores in the Paint Stores Group open more than 12 calendar months were approximately flat in the quarter.   Sherwin also notes that its consolidated net sales decreased primarily due to lower sales volumes in the Consumer Brands Group, inclusive of the impact from the divestiture of the China architectural business in the prior year, and the Performance Coatings Group in North America.   Income before income taxes also increased to $640 million, as compared to the $614.8 million reported in the first quarter of 2023—up about 4.1%. This was primarily due to benefits from moderating raw material costs, partially offset by continued investments in long-term growth strategies and digital technologies.   Diluted net income per share ($1.97) and diluted adjusted net income per share ($2.17) were also reportedly up from 2023 by 7.1% and 6.4%, respectively. Diluted net income per share included a charge of $0.20 per share for acquisition-related amortization expense in the first quarter of both 2024 and 2023.   “In what is a seasonally smaller first quarter and with continued demand choppiness in several end markets, Sherwin-Williams delivered consolidated sales within our guided range, gross margin expansion and diluted earnings per share and EBITDA growth,” said President and Chief Executive Officer Heidi G. Petz. “We also continued to execute our capital allocation strategy by investing $546 million in share repurchases and increasing our dividend 18.2% in the quarter.”

Results by Segment

  Net sales in the Consumer Brands Group decreased 7.1% to $811 million from last year’s $872.7 million. Sherwin attributes the decrease primarily to a mid-single digit percentage sales volume decline and a 2.6% impact of divestitures in 2023. The sales volume decrease in North America was reportedly partially offset by sales volume growth in Europe as well as selling price increases in Latin America and Europe, which impacted net sales by a low-single digit percentage.   CBG segment profit ($153.4 million) increased 49.3% primarily due to higher fixed cost absorption in the manufacturing and distribution operations within the segment, moderating raw material costs and improved results in Latin America and Europe, partially offset by lower North America sales volume.   “In Consumer Brands Group, North America DIY paint demand remained soft, which was partially offset by international growth,” said Petz. “Segment margin improved, primarily driven by higher manufacturing and distribution fixed cost absorption, lower raw material costs and improved results in Latin America and Europe.”   In the Paint Stores Group, net sales increased to $2.87 billion from $2.86 billion in Q1 of last year. The company attributes this to a modest impact from the recently announced price increase with sales volume approximately flat year-over-year. Segment profit in the Paint Stores Group, however, decreased by 6.4% year-over-year, reporting $493.2 million. This was attributed to continued investments in long-term growth strategies and higher employee-related costs, partially offset by moderating raw material costs.   “Paint Stores Group sales were up slightly against a strong double-digit comparison, driven by a modest contribution from our February 1 price increase which will reach greater realization in the second quarter. Our recent growth investments helped drive above-market growth in Residential Repaint. Commercial and Protective & Marine sales also grew,” explained Petz. “New Residential sales were down as anticipated, though we are seeing momentum with our homebuilder customers. Delayed capex projects impacted Property Maintenance sales.”   In the Performance Coatings Group, net sales also decreased from $1.71 billion to $1.68 billion, primarily due to lower sales volume in North America and Latin America, partially offset by higher sales volumes in Europe, inclusive of acquisition impact, and Asia. Performance was reportedly led by the Industrial Wood and Coil businesses, offset by decreases in the General Industrial and Packaging businesses. Incremental sales from acquisitions increased net sales by 1.3% in the quarter.   “Performance Coatings Group sales were in line with expectations as demand remained variable by business and region. Sales grew in Industrial Wood and Coil. Sales were flat in Auto Refinish against a mid-teens comparison, and Packaging sales were down, as expected,” added Petz. “General Industrial demand was soft in all regions. Segment margin improved year-over-year for the fifth consecutive quarter. In all segments, we continued to execute on our priorities which we expect will drive increasing momentum as the year progresses.”   PCG segment profit increased by 8.6% from $218.9 million in 2023 to $237.7 million. Sherwin notes that this was a result of moderating raw material costs, partially offset by lower sales volume in North America.

Looking Ahead

  Looking ahead, Petz notes that they remain “highly confident” in their customer focused strategy and the company is “extremely well-positioned as the painting season begins.   “While uncertainties persist in the macroeconomic environment, we see growing opportunity, and we are encouraged by pro architectural demand and sentiment in April. Our team is aggressive, determined and focused on the right priorities,” said Petz. “The growth investments we've made, the solutions we bring, the internal metrics we drive, and changing competitive dynamics are all pointing in our favor, and I am confident that these factors will translate into strong performance going forward. We expect share gains and returns to become more and more evident as the year progresses. We continue to have high expectations and are committed to meeting or exceeding our targets. We remain unwavering in driving success for our customers and shareholders.   “We expect second quarter 2024 consolidated net sales to be flat to up a low-single digit percentage compared to the second quarter of 2023. Our guidance for the full year 2024 remains unchanged, with consolidated net sales expected to be up a low to mid-single digit percentage compared to full year 2023 and diluted net income per share in the range of $10.05 to $10.55 per share, including acquisition-related amortization expense of $0.80 per share, compared to $9.25 per share in 2023. Full year 2024 adjusted diluted net income per share is expected to be in the range of $10.85 to $11.35 per share compared to $10.35 per share in 2023, an increase of 7% at the mid-point. We expect to provide an update on our full year guidance when we report our second quarter results in July.”

PPG 2024 Q1 Financial Report

  Global coatings supplier PPG (Pittsburgh) reported 2024 first quarter net sales of about $4.3 billion, a 2% decrease from the year prior, in a financial results press release, organic sales also reportedly declined 2% versus last year.   Net sales for the quarter were reportedly roughly $4.31 million, a decrease of about 2% compared to 2023. For the first quarter, reported net income from continuing operations was $400 million, or $1.69 per diluted share, up exponentially from 2023’s first-quarter figure of $264 million, or $1.11 per diluted share.   “We achieved year-over-year adjusted EPS growth for the fifth consecutive quarter despite continued challenges in the macro environment. The company benefited from our well-established businesses in Mexico and China, our second and third largest net sales countries, respectively. We also delivered organic sales growth in India and in several long-cycle businesses such as protective and marine coatings and aerospace coatings, where our backlog grew,” commented Tim Knavish, PPG Chairman and Chief Executive Officer. “These gains were mitigated by a large customer load-in and pass-through energy surcharges in Europe that occurred in the prior-year period, lowering year-over-year sales comparisons by approximately 130 basis points. During this year’s first quarter, we were also impacted by lower demand in Europe, including an early Easter holiday which reduced the number of selling days in March, and ongoing tepid global demand for industrial coatings.   “We continue to make progress on returning to our historic segment margin profile with an aggregate segment margin improvement of 60 basis points, marking the sixth consecutive quarter of year-over-year improvement. 2024 is expected to be another year of excellent cash flow, and our balance sheet remains strong, including lower inventories year over year, providing us with ongoing shareholder value creation opportunities. We completed approximately $150 million of share repurchases in the first quarter.”

Performance Coatings

  First-quarter sales for PPG’s Performance Coatings segment totaled about $2.61 billion, down from approximately $2.63 million, or about 1%, compared to 2023. The net sales decrease was reportedly a result of higher selling prices and favorable foreign currency translation were offset by lower sales volumes. Year-over-year first quarter sales volume comparisons were unfavorably impacted by a prior-year, $40 million Walmart sales load-in benefit and the earlier timing of Easter in 2024, PPG explains.   Organic sales for architectural coatings in Europe, Middle East and Africa were reportedly down by a mid-single-digit percentage; however, architectural coatings in Mexico delivered another solid quarter. Architectural coatings sales in the U.S. and Canada were lower due to the prior-year Walmart load-in, more than offsetting current year growth in the professional contractor segment. Absent the impact of the load-in, year-over-year sales volumes grew a low single-digit percentage in the business.   Automotive refinish coatings organic sales were reportedly flat, as a challenging prior year comparison in the U.S. offset solid growth in Asia Pacific, Latin America and Europe. Protective and marine coatings also delivered low single-digit percentage organic sales growth driven by energy and marine-related demand.   Sales of PPG’s technology-advantaged aerospace products remained strong, as the business delivered mid-single-digit percentage organic sales growth year over year, while the order backlog increased to $275 million, PPG reports. Segment income was higher than the prior year by 2% at $402 million, mainly due to higher selling prices and input costs, which moderated from record levels, and were partially offset by lower sales volumes and increased wages.

Industrial Coatings

  Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.7 billion, down 3% from 2023. The decrease was reflected in lower selling prices and slightly lower sales volumes.   Automotive OEM coatings organic sales reportedly decreased by a low single-digit percentage due to lower index-based selling prices and lower industry volumes in the U.S. and Europe, offset by PPG above-market growth in Asia Pacific and Mexico. Industrial coatings organic sales also declined by a mid-single-digit percentage with subdued industrial activity in the U.S., Latin America and Europe more than offsetting strong PPG growth in China and India.   PPG notes that segment income was 4% higher than the prior year, as input costs moderated from historically high levels and manufacturing performance improved, which more than offset the impact from lower organic sales and higher wages.

Moving Forward

  According to the press release, PPG anticipates that organic sales growth will be up in the low single digits for the second quarter of 2024, as well as fiscal year 2024. The company reports that it is basing its projections for the second quarter and full-year 2024 based on current global economic activity, continued uneven global industrial production, uneven but stabilizing demand in Europe, continued growth in Mexico and solid PPG performance in China.   “Looking ahead, while global industrial production remains at low absolute levels, we believe that demand in China for our products will deliver solid organic growth. In Europe, demand is expected to stabilize as we progress through 2024, despite unevenness by country. In the U.S., economic conditions have remained subdued in several end-use markets, but we expect overall improvement as the year progresses. In Mexico, we forecast strong momentum to continue,” continued Knavish. “We are executing on the strategic reviews of the architectural coatings U.S. and Canada business and global silicas products business that we announced in the first quarter. Our target is to determine a path forward for each of these assessments no later than the third quarter.   “PPG remains focused on various enterprise growth initiatives to drive higher sales volumes and fully capitalize on our technical and service capabilities. In the second quarter, we expect low single-digit percentage aggregate sales volume growth, led by our aerospace, protective and marine, and packaging coatings businesses and by Mexico, China and India. 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 and specialty materials, including productivity-enhancing and sustainable solutions.”

Graco Releases Q1 Financial Results

  Equipment manufacturer Graco Inc. released its first-quarter financial results for 2024, reporting a 15% decrease in operating earnings for the quarter. According to the release, sales decreased 8% in the Americas, increased 2% (flat at consistent translation rates) in the EMEA region and decreased 16% (14% at consistent translation rates) in the Asia Pacific region. Net sales for the first quarter, which ended on March 29, decreased 7% from the same period last year.   The gross profit margin rate for the quarter was reported to slightly improve from the first quarter of last year. Additionally, the favorable effect of realized price increases more than offset the unfavorable product and channel mix. Total operating expenses for the quarter increased $5 million (4%) compared to last year, including about $3 million (2 percentage points) of increased unallocated corporate operating expense and $1 million (1 percentage point) of increases in product development spending.   “Sales were down in all segments and regions for the first quarter, with the exception of EMEA Contractor,” said Mark Sheahan, Graco's President and CEO. “The quarter was weaker than expected, which creates a challenging start to the year. Gross margins improved slightly, however lower sales volume negatively impacted operating earnings in the quarter.”   Additionally, the drop in operating earnings was reportedly caused by an improved gross profit margin rate failing to offset lower sales volume and higher operating expenses. The company stated that other income for the quarter increased $6 million from the comparable period last year, largely due to increased interest income of approximately $4 million. The effective income tax rate was reportedly 13%, down about 5 percentage points from last year. The decrease was reportedly mainly due to an increase in excess tax benefits related to stock option exercises.

Segment Results

  In the Contractor Segment, net sales at the end of the three-month period came in at $230 million. Continued weakness in North American construction markets led to a 6% decrease in sales for the quarter.   Unfavorable product and channel mix and increased spending related to product development also reportedly helped cause a decrease of 1 percentage point in the operating margin rate for the quarter. Improved price realization and lower product costs were also unable to offset the decline in the operating margin rate.   For the Industrial Segment, net sales at the end of the three-month period came in at $142 million. Segment sales decreased in all regions for the quarter, including a double-digit decrease in Asia Pacific, where economic activity weakened compared to last year. The decline was reportedly in part offset by an increase in powder finishing system sales in the Americas. The first quarter operating margin rate for this segment decreased by 3 percentage points, mainly due to the unfavorable effects of product and channel mix and expense leverage.   In the Process Segment, net sales for Q1 came in at $120.2 million. Process segment sales decreased in all regions for the quarter due to weakness in the semiconductor product application. The operating margin rate for this segment decreased by about 1 percentage point as price realization was more than offset by unfavorable expense leverage on lower sales volume.   “Despite the slow start to the year, incoming order rates gained momentum as the quarter progressed. Improved order rates together with exciting new products scheduled to launch in the second quarter support our outlook for the year,” said Sheahan. “We are reaffirming our full-year revenue guidance of low single-digit growth on an organic, constant currency basis.”