Several coatings manufacturers recently released their earnings reports for the second 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 Q2 Results
Global coatings firm The Sherwin-Williams Company released its 2023 second-quarter financial results, reporting a 6.3% increase in consolidated net sales to a record $6.24 billion for the quarter compared to the year prior. The coatings manufacturer adds that diluted net income per share also increased 38.9% to $3.07 per share in the quarter compared to $2.21 per share in the second quarter 2022. Adjusted diluted net income per share increased 36.5% to $3.29 per share in the quarter compared to $2.41 per share in the second quarter 2022.
Sherwin reported that its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased 31.4% to $1.28 billion in the quarter and was 20.6% of net sales.
Consolidated net sales increased primarily due to selling price increases, which impacted sales by a mid-single digit percentage and mid-single digit volume growth due to higher architectural sales volume in the Paint Stores Group. This growth was offset by lower volume in industrial businesses, the company says. Acquisitions increased consolidated net sales by 1.4%. Income before income taxes increased primarily due to selling price increases in all segments and higher sales volume in the Paint Stores Group, as well as moderating raw material costs. These factors were partially offset by lower sales volume in the Performance Coatings Group, increased investments in long-term growth initiatives and higher employee-related costs.
During the quarter, Sherwin said that it completed the divestiture of a non-core domestic aerosol business and announced it had signed a definitive agreement to divest the China architectural business within the Consumer Brands Group, as part of a previously announced restructuring plan to simplify the company’s operating model and reduce costs.
Diluted net income per share in the quarter included a $0.05 per share impairment charge related to the pending divestiture of the China architectural business, as well as severance and other charges totaling $0.03 per share, offset by a $0.06 per share gain from the divestiture of the non-core domestic aerosol business. In addition, diluted net income per share included a charge of $0.20 per share for acquisition-related amortization expense.
“Gross margin improved sequentially and year-over-year to 46%, driven by strong sales volume in our Paint Stores Group as well as moderating raw material costs. We leveraged the strong sales growth to drive solid margin expansion across all our segments, while also investing in growth initiatives that will propel sustained future performance. In addition, we delivered strong double-digit percentage growth in earnings per share and EBITDA. We generated strong cash flow and continued our disciplined approach to capital allocation, including returning $849 million to shareholders through dividends and share repurchases year to date,” said Chairman and Chief Executive Officer, John G. Morikis.
Results by Segment
Starting with the first quarter of 2023, Sherwin 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. The company now reports segment results for the newly realigned Paint Stores Group and Consumer Brands Group.
Net sales in the company’s Paint Stores Group increased primarily due to mid-single digit volume growth across most end markets, as well as selling price increases, which impacted sales by a mid-single digit percentage, the company says. According to Sherwin, PSG segment profit increased due primarily to higher paint sales volume, selling price increases and moderating raw material costs, partially offset by continued investments in long-term growth strategies and higher employee-related costs. The company also reported that net sales from stores in U.S. and Canada open more than 12 calendar months increased 9.5% in the quarter.
“In our reportable segments, growth in our Paint Stores Group was led by double-digit percentage growth in protective and marine, commercial and property maintenance. Residential repaint sales were up a high-single digit percentage. New residential sales were flat, as completions slowed as expected,” commented Morikis.
In the Consumer Brands Group, Sherwin reported net sales increases which it says were primarily due to selling price increases, which impacted sales by a mid-single digit percentage. Higher sales volume growth in Latin America and Europe was reportedly offset by lower sales volume in North America and Asia. The CBG segment profit increased primarily due to selling price increases and moderating raw material costs and good cost control, partially offset by inflation in wages and other employee-related costs.
Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 190 basis points in the second quarter of 2023, compared to 210 basis points in the second quarter of 2022. Restructuring expense and impairment charges reduced segment profit as a percent of net external sales by 210 basis points in the second quarter of 2023.
As for the Performance Coatings Group, Sherwin says that net sales increased primarily due to selling price increases in all end markets, which increased net sales by a mid-single digit percentage, and incremental sales from acquisitions, largely offset by lower sales volumes in most regions. Acquisitions increased PCG’s net sales by 4.5% in the quarter, and PCG segment profit increased primarily as a result of selling price increases, moderating raw material costs and effective cost control, partially offset by higher employee-related costs, the company says. Acquisition-related amortization expense reduced segment profit as a percent of net external sales by 280 basis points in both the second quarter of 2023 and 2022.
“In the Performance Coatings Group, our Automotive Refinish business grew by a high-single digit percentage. We also generated growth in our General Industrial and Industrial Wood businesses. Coil and Packaging sales were down against very difficult comparisons,” said Morikis.
Looking Ahead
“As a result of our better than expected first half results, and our current visibility into the second half, we are increasing our sales and earnings guidance for the full year,” said Morikis. “At the same time, our second half comparisons remain challenging, and demand is likely to vary widely by region and end market, leading us to focus even more intensely on our new account and share of wallet initiatives.
Morikis also noted that in the Paint Stores Group, the company expects demand to remain solid in commercial, property maintenance, protective and marine and residential repaint, while new residential demand is expected to remain soft due to continued slowing of completions, though share gains should enable us to outperform the market. In the Consumer Brands Group, Morikis said that though North America DIY demand remains soft, demand in Europe has stabilized and markets in Latin America have shown mixed results. In the Performance Coatings Group, however, North America demand has slowed, while Europe and Asia remain “choppy,” Morikis says.
“Even in challenging environments like the current one, we remain confident in our strategy, and we will continue to invest in stores, sales and technical reps, innovation, digital and other growth initiatives to press our advantages now as well as when markets recover more fully. We expect to continue delivering above market growth and returns,” said Morikis
“As for our guidance, we expect 2023 third quarter consolidated net sales growth to be up or down a low-single digit percentage compared to the third quarter of 2022. For the full year 2023, we are increasing both sales and net income per share guidance. We now expect full year consolidated net sales to be up a low-single digit percentage compared to 2022, versus our prior guidance of flat to down a mid-single digit percentage.”
PPG 2023 Q2 Financial Report
Global coatings company PPG released its second-quarter earnings report late Thursday (July 20), reporting $4.9 billion in net sales—approximately 4% higher than this time last year. Net income for the second quarter came in at $490 million with adjusted net income landing at $534 million.
PPG also notes that, compared to Q2 of 2022, selling prices increased by 6%, but sales volumes were down by 3%. The company points to their diverse portfolio, which reportedly helped deliver record sales and earnings in the second quarter.
While the overall global industrial demand was “lackluster,” several of PPG’s technology-advanced businesses and brands reportedly once again delivered strong growth. In particular, the company points to the aerospace, automotive original equipment manufacturer (OEM), automotive refinish coatings and the PPG Comex businesses.
“We made excellent progress in restoring operating margins toward our prior historical profile, as we sharply improved year-over-year segment margins by 330 basis points. Additionally, we demonstrated one of our long-standing legacies of strong cash generation with record operating cash flow for the first half of the year, and we are targeting further working capital improvements in the second half of the year, specifically in raw materials inventory,” wrote Tim Knavish, PPG president and chief executive officer.
Q2 by Segment
In the Performance Coatings segment, PPG reported $3.04 billion in net sales, compared to $2.93 billion in the same period last year in a 4% increase. Segment income came in at $537 million, compared to $446 million in 2022. Within the Performance Coatings segment, the company noted that net sales increased through higher selling prices in all businesses and favorable foreign currency translation that “more than offset” lower sales volumes.
Demand for PPG’s aerospace products reportedly remained robust across all product categories as the business delivered record sales, aided by low-teen percentage sales volume growth year-over-year. PPG Comex also delivered another record quarter, continuing to benefit from a growing Mexican economy and its “well-established” brand.
Organic sales in the U.S. architectural coatings business were reportedly solid in the professional paint channel, especially for non-residential activity, though offset by continuing soft do-it-yourself demand.
Demand for architectural coatings in Europe also remained at lower levels with sales volumes down about 10% on a year-over-year basis from reduced remodeling activity and weak regional consumer confidence.
Automotive refinish coatings organic sales increased by a mid-single-digit percentage led by higher global selling prices and sales volume growth in the U.S. where demand neared pre-pandemic levels.
Organic sales in the protective and marine coatings business improved by a high single-digit percentage, PPG reports, with contributions from higher selling prices and sales volumes compared to the second quarter of 2022.
The Industrial Coatings segment’s net sales increased by about 4% coming in at $1.83 billion compared to $1.76 billion year-over-year. Segment income landed at $250 million, 60% higher compared to $156 million this time last year. This was primarily driven by higher selling prices across all businesses, partially offset by lower sales volumes, the company says.
Automotive OEM coatings organic sales were higher by a mid-teen-percentage with solid growth in all major regions from increases in both sales volumes and selling prices, according to the release. Though global industry growth rates have improved in the first half of 2023, they remain “well below” pre-pandemic levels, PPG predicts.
Packaging coatings organic sales, however, were lower by a mid-single-digit percentage as higher selling prices were offset by lower sales volumes from soft demand in each major region and most product categories.
Looking Ahead
“Looking ahead, we anticipate that the global macroeconomic environment will remain generally consistent with the second quarter including continued tepid global industrial production, along with some incremental slowing in U.S. architectural residential repaint due to significantly lower existing home sales,” said Knavish.
“Given the strength and momentum we have experienced year to date in several of our businesses, such as aerospace coatings and automotive OEM coatings, we expect our diverse portfolio mix to provide us with continued resiliency.”
The company had cash and short-term investments totaling approximately $1.3 billion at the end of the quarter and net debt of $5.6 billion. The company notes that acquisition-related synergies and business restructuring programs delivered about $15 million of incremental cost savings.
Lastly, the company expects that the effective tax rate for the third quarter 2023 to be between 23% and 24%, higher than the third quarter 2022 mainly due to nonrecurring discrete tax items the prior year. PPG projects that total organic sales for the third quarter will go up by a low single digit percentage, while the adjusted EPS to go to $1.85 to $1.95 per share.
