In January, several coatings manufacturers released their earnings reports for the fourth quarter of 2023. Of those was Strategic Partner of the Commercial Painting Industry Association, The Sherwin-Williams Company, and CPIA Gold Member, PPG.
For Sherwin-Williams and PPG, the 2023 fourth quarter officially ended on Dec. 31, 2023.
The Sherwin-Williams Company 2023 Q4 Results
Global coatings firm The Sherwin-Williams Company released its 2023 fourth-quarter and year-end financial results yesterday (Jan. 25), reporting consolidated net sales at a 0.4% increase for the quarter and a 4.1% increase for the year.
This brought the net sales for the quarter to $5.25 billion and net sales for the year to a record $23.05 billion.
The company attributes the fourth-quarter growth to an increase in Paint Stores Group net sales volume. This growth was partially offset by lower net sales volumes in the Performance Coatings and Consumer Brands Groups.
“Sherwin-Williams delivered solid fourth quarter results, with positive sales growth and significant year-over-year gross margin improvement,” said President and Chief Executive Officer, Heidi G. Petz. “We continued our accelerated growth investments in the quarter, which we are confident will continue to drive profitable above-market growth in future periods.
“Sales in all three reportable segments were within or better than our guidance. In our architectural businesses, commercial and residential repaint were the strongest performers, while DIY remained challenging. In our industrial businesses, growth varied by division and region, reflecting ongoing choppiness in the market. Paint Stores Group and Performance Coatings Group segment margins expanded year over year.”
For the full year, sales reportedly grew to a record $23.05 billion, with gross margin expanded to 46.7%, which Petz notes is well within their current targeted range. Adjusted diluted net income per share also increased 18.6% to a record $10.35 per share.
“From a segment perspective, Paint Stores Group overcame a difficult demand environment characterized by challenging conditions in new residential and existing home sales markets to deliver high-single digit percentage growth against a low-teens comparison, while also expanding its segment margin,” Petz continued.
“Consumer Brands Group faced weak DIY demand, but grew in its targeted Pros Who Paint market and completed the divestiture of non-core aerosol product lines and its China architectural business. Performance Coatings Group generated sales growth in a market that was highly variable by region and business, further integrated recent acquisitions and delivered strong adjusted segment margin.”
Q4 Earnings Breakdown
Net sales in the Paint Stores Group increased 2.3% to $2.9 billion, primarily due to low-single digit percentage net sales volume growth driven by protective and marine, commercial and residential repaint end markets.
PSG segment profit also reportedly increased 14.8% to $567.3 million due to growth in net sales volume and moderating raw material costs, partially offset by continued investments in long-term growth strategies and higher employee-related expenses.
In the Consumer Brands Group, net sales decreased 7.1% to 692.3 million million for the quarter, due to a mid-single digit percentage decrease in net sales volume due to demand softness in North America and the divestiture of the China architectural business which decreased net sales by approximately 3% year-over-year, offset by increases in Latin America and Europe.
Segment profit decreased 89.7% to $3.6 million, primarily due to lower net sales volume and higher foreign currency transaction losses driven primarily by the Argentine Devaluation of $30.8 million. These decreases were offset by benefits from moderating raw material costs.
Net sales in the Performance Coatings Group also increased 0.4% year-over-year to $1.614 billion. Sherwin attributes this increase to acquisitions and favorable currency translation, which both increased net sales by a low-single digit percentage. Growth was reportedly led by the Industrial Wood including acquisitions, Coil and Automotive Refinish businesses, offset by decreases in the Packaging and General Industrial businesses.
Segment profit for the fourth quarter increased 40.1% to $220.3 million, as a result of moderating raw material costs, partially offset by lower net sales volume, an increase in selling costs and the Argentine Devaluation of $11.0 million.
Looking Ahead
In terms of a 2024 outlook, Petz said that the company expects first quarter 2024 consolidated net sales will be up or down a low-single digit percentage compared to the first quarter of 2023.
For the full year 2024, based on the current indicators, they expect consolidated net sales to be up a low to mid single digit percentage.
“We enter 2024 with confidence in our team's ability to outperform the market given our customer-focused differentiated services and solutions,” said Petz. “These solutions drive customer productivity and profitability and position us to create value in any environment.
“Our strategy is proven and unchanged, and we have the right people, the right culture and the right brands to deliver. While the macro environment feels more encouraging than it did a year ago, uncertainties remain.
“We expect to see some recovery in new residential construction, moderation in commercial construction, choppiness in repair and remodel and few catalysts in DIY. We expect Auto Refinish and Protective & Marine demand to remain strong and gradual improvement in Industrial Wood and Packaging, with less clarity in General Industrial.
“As we look at our entire cost basket, we see modest raw material deflation, though continued escalation of wages and other costs has led us to implement a 5% price increase in Paint Stores Group effective February 1. We expect gross margin expansion, and strong cash generation will enable us to remain committed to our disciplined capital allocation approach.”
PPG 2023 Q4 Financial Report
Global coatings manufacturer PPG announced its 2023 fourth-quarter earnings report on Thursday (Jan. 18), as well as its year-end report.
For the quarter, the company reported net sales of approximately $4.4 billion, up about 4% year-over-year, including organic sales growth of 1%. Full-year 2023 showed net sales from continuing operations at $18.2 billion and was supported by 3% organic sales growth.
Tim Knavish, PPG chairman and chief executive officer, commented on the quarter and 2023:
“Capping off a record year, the PPG team delivered solid year-over-year sales growth, strong adjusted earnings growth and record operating cash flow.
“The breadth and diversity of our business portfolio was a key driver to our record fourth quarter performance, as we benefited from solid volume growth in China, demand stabilization in Europe and continued growth in several key end-use markets such as aerospace, automotive original equipment manufacturer (OEM) and protective coatings.
“We made strong progress on returning to our historic segment margin profile while delivering segment earnings growth of 30% and an aggregate segment margin improvement of 260 basis points, marking the fifth consecutive quarter of year-over-year margin improvement.
“Additionally, our earnings growth and working capital management resulted in strong cash generation in the quarter and record operating cash flow of over $2.4 billion for the year. We ended the year with a strong balance sheet that, coupled with our legacy of solid cash flow, provides us with shareholder value creation opportunities going forward.”
Q4 by Segment
The Performance Coating Segment saw net sales of $2.6 million, an increase of 5% from last year’s $2.4 million. The increase was reportedly led by higher selling prices and favorable foreign currency translation.
Sales of PPG’s technology-advantaged aerospace products were reportedly strong, as the business delivered mid-teen percentage organic sales growth year over year. Protective and marine coatings reportedly delivered mid-single-digit percentage organic sales growth driven by strong volume growth in the U.S. and Europe.
Automotive refinish coatings organic sales reportedly grew by a low single-digit percentage, supported by growth in Europe and Asia. In the architectural coatings Americas and Asia-Pacific businesses, organic sales decreased by a low single-digit percentage.
Architectural coatings in Mexico reportedly had a strong quarter, as PPG continued to benefit from a growing Mexican economy and its Comex brand. U.S. and Canada architectural coatings sales were reportedly lower, as growth in the professional contractor channel was offset by continuing softness in do-it-yourself demand.
Segment income rose by 19% compared to the previous year due to higher selling prices and moderating input costs. Segment operating margins reportedly improved by 150 basis points year over year.
In the Industrial Coatings segment, Q4 net sales went up to $1.7 million, up 2% from $1.6 million last year. PPG notes that this increase was supported by favorable foreign currency translation.
According to the release, automotive OEM coatings organic sales increased by a mid-single-digit percentage with higher selling prices in all regions and higher aggregate sales volumes led by PPG’s market share gains in the Asia-Pacific region and Mexico.
Offsetting this sales volume growth was lower global industrial activity, which reportedly resulted in a lessened demand in all other businesses in the segment.
Industrial coatings organic sales reportedly dropped by a mid-single-digit percentage with lower volumes in most sub-segments. Packaging coatings organic sales were also reportedly down a low single-digit percentage from softer customer demand in Europe and Latin America, offset by growth in the U.S. and the Asia-Pacific region.
Segment income was higher than last year by $75 million, or 48%, due to input costs moderating from historically high levels and aiding the manufacturing performance. Segment margins reportedly improved by 420 basis points compared to last year’s fourth quarter.
FY 2023, Looking Ahead
PPG’s full-year 2023 net sales were around $18.2 billion, up about 3% compared to the previous year. Organic sales were reportedly higher by 3% from higher selling prices.
Adjusted EPS was also a record, increasing 27% from higher selling prices, moderating input costs, structural cost savings and positive foreign-currency translation. This was reportedly offset by lower sales volumes. Ending the year, input costs and inventory levels reportedly remained above historical levels.
In 2023, PPG paid about $600 million in dividends and capital expenditure came in at around $550 million. The company repurchased $100 million of stock in the fourth quarter and had about $1 billion remaining on its current share repurchase authorization at the end of 2023.
In addition to 2024 numbers, PPG also released a list of additional information, including:
-Fourth quarter reported EPS included a non-cash charge of $0.67 reflecting goodwill impairment for the Traffic Solutions business;
-Corporate expenses were $100 million in the fourth quarter, higher than the prior year due to increased performance and shareholder return-based incentive compensation along with non-cash pension expense;
-The reported and adjusted effective tax rates were 46.4% and 22.0%, respectively, in the fourth quarter;
-Net interest expense of $13 million was below the company’s expectation at the outset of the quarter due to the early repayment of a term loan and stronger than expected cash generation; and
-At quarter end, the company had cash and short-term investments totaling nearly $1.6 billion.
“Looking at the full year, in addition to our record financial performance, we successfully implemented various strategic initiatives to strengthen the company, including key actions to position PPG for higher organic growth,” said Knavish.
“We also executed on our ongoing portfolio review leading to the divestitures of both our European and Australian Traffic Solutions businesses and the recently announced strategic alternatives review of the silicas products business. Finally, we have continued our heritage of rewarding our shareholders with our 124th consecutive year of dividend payments, including 52 consecutive years of dividend increases.”
PPG also released projections for the first quarter and full year 2024 based on current global economic activity, soft industrial production, demand stabilization in Europe, continued growth in Mexico and demand improvement in China.
The effective tax rate for the first quarter 2024 is expected to be between 24.0% to 25.0%, higher than the previous year with the impact of several regional tax rate increases and the expected mix of country-specific earnings.
“Looking ahead, while global industrial production remains at low absolute levels, we expect that demand for our businesses in China will continue to improve. In Europe, we believe that economic activity will stabilize in 2024 at current levels,” Knavish continued.
“In the U.S., we anticipate that economic conditions will remain subdued during the first half of 2024, and in Mexico, which is now our second largest country in terms of total net sales, we expect strong momentum to continue.
“From a PPG perspective, we plan to deliver volume growth in 2024 by executing on our key strategic growth initiatives and fully capitalizing on continued demand in several areas, including aerospace and Mexico, which will also benefit from cross-selling initiatives through our concessionaire network.”
