Several coatings manufacturers recently released their earnings reports for the first quarter of 2023. Of those was Strategic Partner of the Commercial Painting Industry Association, The Sherwin-Williams Company, and CPIA Gold Member, PPG.
The Sherwin-Williams Company 2023 Q1 Results
Global coatings firm The Sherwin-Williams Company announced its 2023 first quarter financial results on April 25, highlighting an 8.9% net sales increase year-over-year to $5.44 billion. The coatings manufacturer adds that net sales from stores in the United States and Canada open more than twelve calendar months increased 14.2% in the quarter.
Sherwin-Williams also notes that its consolidated net sales increased primarily due to selling price increases in all segments and higher architectural sales volume in the Paint Stores Group, partially offset by lower sales volumes in the Consumer Brands and Performance Coatings Groups.
Additionally, acquisitions increased consolidated net sales by 1.8%. However, currency translation rate changes decreased consolidated net sales by 1.0%.
Income before income taxes also increased to $614.8 million, as compared to the $461.1 million reported in the first quarter of 2022—up about 33.3%. This was primarily due to selling price increases in all segments and higher sales volume in the Paint Stores Group. These factors were partially offset by increased investments in long-term growth initiatives, lower sales volumes in the Consumer Brands and Performance Coatings Groups, and higher employee-related costs.
Diluted net income per share ($1.84) and diluted adjusted net income per share ($2.04) were also reportedly up from 2022 by 30.5% and 26.7%, respectively. Diluted net income per share included a charge of $0.20 per share for acquisition-related amortization expense.
“We delivered strong results in the first quarter, with higher than expected consolidated net sales, sequential and year-over-year expansion in gross margin, and double-digit percentage growth in diluted net income per share and EBITDA,” said Chairman and Chief Executive Officer, John G. Morikis.
“Segment margin expanded sequentially and year-over-year in all three of our reportable segments. We also continued to invest in growth initiatives across the business during the quarter while returning cash to our shareholders through an increase in our quarterly dividend and an investment of $301.7 million to repurchase 1.3 million shares.”
Results by Segment
This year, the company reports that it has changed its organizational structure to manage and report the Latin America architectural paint business within the Consumer Brands Group to more closely align demand and service model trends with its current business strategy. The Latin America business was formerly part of The Americas Group, which has become the Paint Stores Group.
Starting with the first quarter of 2023, Sherwin will report segment results for the newly realigned Paint Stores Group and Consumer Brands Group, for both current and prior periods presented.
In the Paint Stores Group, net sales increased to $2.86 billion from $2.49 billion in Q1 of last year. The company attributes this to higher sales volumes across all end markets, as well as selling price increases.
Segment profit in the Paint Stores Group also increased by 22.8% year-over-year, reporting $526.7 million. This was attributed to higher paint sales volume and selling price increases, partially offset by continued investments in long-term growth strategies and higher employee-related costs.
“In the Paint Stores Group, sales in all end markets were up double-digit percentages, driven by strong volume and led by protective & marine, property maintenance, commercial and residential repaint,” Morikis said.
Net sales in the Consumer Brands Group increased by 2.4%—from $852.2 million to $872.7 million. This was also due primarily to selling price increases and strong growth within Latin America, partially offset by lower sales volumes in all other regions. However, currency translation rate changes decreased CBG's net sales by 1.7%.
“In the Consumer Brands Group, North America DIY sales remained soft, while our Pros Who Paint business was up by a double-digit percentage. Sales were also up by a double-digit percentage in Latin America. Demand remained soft in Europe and China,” Morikis added.
“We're pleased with this Group's progress on the previously described portfolio realignment. In April, we completed the divestiture of a non-core aerosol business and finalized an agreement to divest our China architectural business.”
Segment profit was also increased by 15.1%, reporting $93.8 million compared to the $81.5 million reported in the first quarter of 2021. Sherwin-Williams attributes the increase to selling price increases, partially offset by lower sales volume and inflation in wages and other employee costs.
In the Performance Coatings Group, net sales increased—from $1.65 billion to $1.71 billion, primarily due to selling price increases in all end markets and incremental sales from acquisitions, according to Sherwin. Acquisitions increased this Group’s net sales by 5.4% in the quarter.
However, this was partially offset by lower sales volumes in Asia and Europe, as well as a 1.9% decreased due to currency translation rate changes.
“In the Performance Coatings Group, sales were up in all regions except Asia Pacific. Growth was strongest in Automotive Refinish, which was up by a mid-teens percentage, followed by low-single digit increases in General Industrial and Coil Coatings,” Morikis noted.
“As expected, Packaging was down, impacted by very difficult comparisons, as was Industrial Wood, given weakness in residential end markets.”
PCG segment profit increased over half (51.5%) from 144.5 million in 2022 to $218.9 million. Sherwin notes that this was a result of selling price increases, partially offset by higher employee-related costs.
Looking Ahead
Looking ahead, Morikis notes that while the first quarter was strong, it was a “seasonally smaller quarter,” and the company’s outlook for the full year remains unchanged.
“Visibility remains limited, and we continue to expect a very challenging demand environment in the back half of 2023 against difficult comparisons. On the architectural side of the business, we are seeing demand softness in new residential and the Consumer Brands Group DIY. On the industrial side, Europe and China have yet to fully recover, and we're seeing increased pressure in North America,” he wrote.
“We will continue to prioritize what we can control, by maintaining a focus on recession resilient markets, growing new accounts and share of wallet, continuing appropriate growth investments in stores and sales representatives, and managing price-cost dynamics. We remain confident in our differentiated strategy, capabilities and product and service solutions, and we continue to expect to outperform the market.
“Against this backdrop, we expect 2023 second quarter consolidated net sales growth to be up or down a low-single digit percentage compared to the second quarter of 2022. For the full year 2023, we continue to expect consolidated net sales to be down a mid-single digit percentage to flat compared to full year 2022.
“Our full year 2023 diluted net income per share guidance remains unchanged at $6.79 to $7.59 per share, including acquisition-related amortization expense of $0.81 per share and restructuring expense of $0.25 to $0.35 per share, compared to $7.72 per share in 2022. Full year 2023 adjusted diluted net income per share is expected to be in the range of $7.95 to $8.65 per share compared to $8.73 per share in 2022.”
PPG 2023 Q1 Financial Report
Global coatings supplier PPG (Pittsburgh) reported record first quarter net sales of about $4.4 billion, a 2% increase from the year prior, in a financial results press release issued on April 20.
Organic sales growth also grew by about 5% versus the prior year, led by higher selling prices.
Net sales were reportedly roughly $4.38 million, an increase of 2% compared to 2022. This was largely attributed to higher selling prices, which increased by 8%. However, sales volumes were down by approximately 3%, year-over-year.
Foreign currency translation impacted net sales unfavorably as well, decreasing by 2%. The window down of Russia operations also decreased sales by about 1%.
For the first quarter, reported net income from continuing operations was $264 million, or $1.11 per diluted share, up exponentially from 2022’s first-quarter $18 million, or $0.08 per diluted share.
“As we communicated earlier this month, the pace of our operating margin recovery accelerated during the quarter, which drove a 33% year-over-year increase in adjusted EPS. Our improving results are despite macroeconomic conditions that remain challenging and reflect the strengths of our diverse business portfolio and progress we are making on restoring margins in line with our historical profile,” commented Tim Knavish, PPG President and Chief Executive Officer.
“While the global demand environment generally remained consistent with our prior expectations, several businesses outperformed our original forecast and their respective markets. These include the aerospace coatings business and our Latin America region, each delivering record sales in the first quarter. In addition, our automotive original equipment manufacturer (OEM) coatings business benefited from solid global production growth and remains well positioned. Finally, our latest customer win in the U.S. architectural business provided a higher load-in benefit than originally projected.
“Our strong earnings growth was across most business units and was aided by higher incremental margins that were driven by higher selling prices, improving manufacturing efficiencies and overall cost discipline. These factors also resulted in record first quarter operating earnings in our Europe, Middle East and Africa (EMEA) region.”
The company had cash and short-term investments totaling approximately $1.5 billion at the end of the quarter and net debt of $5.8 billion, which is about $300 million lower compared to the prior-year first quarter. Inventories reportedly rose modestly on a sequential basis ahead of historically higher seasonal sales levels.
Q1 by Segment
First-quarter sales for PPG’s Performance Coatings segment totaled about $2.63 billion, up approximately $11 million, or about 2%, compared to 2022. The net sales increase was reportedly a result of higher selling prices in all businesses offsetting lower sales volumes, the impact of divestitures, the wind down of business in Russia and unfavorable foreign currency translation.
PPG’s Architectural Coatings segment was reported to grow by a high single-digit percentage aided by new business wins and higher selling prices, which more than offset the effect of weakening regional construction markets.
However, due to customer order patterns in Europe and the U.S., automotive refinish coatings organic sales were flat compared to the first quarter 2022, with order backlogs remaining in the U.S. The company expects refinish sales volumes to be close to 2019 pre-pandemic levels in the second quarter.
Aerospace coatings sales volumes had a high-teen-percentage year-over-year sales volume growth and organic sales in the protective and marine coatings business improved by a mid-single-digit percentage, primarily due to strong demand in the U.S. and Latin America.
Segment income was higher than the prior year by $100 million, or 13.7%, mainly due to higher selling prices focused on margin recovery and partially offset by lower sales volumes.
Compared to the prior year’s performance in the same quarter, net sales for PPG’s Industrial Coatings segment were about $1.75 billion, up 1% from 2022. The growth reflected selling price increases across all businesses, partially offset by lower sales volumes, and the wind down of business in Russia.
Automotive OEM coatings organic sales were “sharply” higher with contributions from higher sales volumes and global selling prices. Industry build growth was reportedly highest in Europe, where the company notes it is well positioned with advantaged technologies and where regional growth is forecast to remain robust in 2023.
Industrial coatings organic sales were down a low single-digit percentage as selling price realization was more than offset by lower sales volumes due to softer global industrial production. Additionally, packaging coatings delivered low single-digit percentage organic sales growth led by higher selling prices, which were offset by lower sales volumes in most regions.
Segment income was $240 million, up $100 million, or approximately 71%, year-over-year. This was reportedly due mainly to higher selling prices focused on margin recovery, partially offset by lower sales volumes.
Looking Ahead
According to the press release, PPG anticipates that second quarter aggregate sales volumes flat with equal potential for slight improvement or decrease of a low single-digit percentage year over year.
Corporate expenses are expected to be about $75 million, higher than the prior year primarily due to increased pension costs. Net interest expenses are expected to be between $35 million and $40 million.
The company reports that it is basing its projections on current global economic activity and in consideration of the economic uncertainty associated with the impacts of geopolitical issues in Europe and higher interest rates in most developed countries.
“Looking ahead, we anticipate the macro environment will generally remain consistent with the first quarter, with continued stabilization of economic activity (at lower absolute levels) in Europe and modestly improving demand in China. In the U.S., we expect sequential slowing in economic activity in certain end-use markets, particularly those that are construction-related,” said Knavish.
“Supply chain disruptions are abating, and we are already experiencing and expect further increases in commodity raw material availability. We remain highly focused on partnering with our customers and delivering superior service and products with a focus on enhancing their productivity and sustainability.
“Finally, along with additional organic growth, we are executing and delivering on our previously announced restructuring actions and acquisition-related synergies, which collectively will drive additional margin recovery momentum and related operating cash flow.”
