In January, several coatings manufacturers released their earnings reports for the fourth quarter of 2022. 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 2022 fourth quarter officially ended on Dec. 31, 2022.
The Sherwin-Williams Company 2022 Q4 Results
Global coatings firm The Sherwin-Williams Company released its 2022 fourth-quarter and year-end financial results yesterday (Jan. 26), reporting consolidated net sales at a 9.8% increase for the quarter and an 11.1% increase for the year.
This brought the net sales for the quarter to $5.23 billion and net sales for the year to a record $22.15 billion.
The company attributes the fourth quarter growth to increased selling prices in all segments, as well as higher architectural sales volume in the Americas Group. This was partially offset by lower sales volumes outside of North America in the Consumer Brands and Performance Coatings Group.
Additionally, acquisitions increased consolidated net sales by approximately 1.5%, while currency translation rate changes reportedly decreased consolidated net sales by 2%.
“Sherwin-Williams delivered strong fourth quarter results compared to the same period a year ago, including high single-digit percentage sales growth, significant year-over-year gross margin improvement, expanded adjusted operating margins in all three segments, strong double-digit adjusted diluted net income per share growth and strong EBITDA growth,” said Chairman and Chief Executive Officer, John G. Morikis.
“Our more than 61,000 employees delivered these results in another year of difficult operating conditions, including relentless cost inflation, less than optimal raw material availability, slowing economies, a war in Europe and COVID lockdowns in China. We refused to be deterred by these challenges and continued to do what we do best – serve our customers.”
Q4 by Segment
Net sales in The Americas Group increased 15.7% to $3.07 billion, primarily due to selling price increases and higher architectural sales volume in most end markets.
Profit for the segment also increased 31.6% to $526.7 million due to higher paint sales volume and selling price increases, partially offset by increased raw material costs and higher SG&A costs related to continued investments in long-term growth strategies.
In the Consumer Brands Group, net sales decreased 2.4% to $551.5 million for the quarter, due to lower sales volume, partially offset by selling price increases in all regions.
Segment profit decreased 85.1% to $2.4 million, primarily due to lower sales volume, increased raw material costs and supply chain inefficiencies, as well as the costs associated with targeted restructuring actions including non-cash trademark impairments.
Net sales in the Performance Coatings Group also increased 4.2% year-over-year to $1.61 billion. Sherwin attributes this increase to selling price increases in all end markets, in addition to acquisitions increasing this Group’s net sales by about 4.5% in the quarter.
Segment profit for the fourth quarter increased 80.4% to $157.3 million, again due to selling price increases, partially offset by increased raw material costs and higher costs to support increased sales levels.
Looking Ahead
In terms of 2023 outlook, Morikis said that the company expects consolidated net sales to remain flat or have up to a mid-single digit percentage increase compared to the first quarter of 2022. For the full year, it is anticipated for consolidated net sales to be down a mid-single digit percentage to flat compared to 2022.
Sherwin also expects raw material costs to decrease by a low to mid-single digit percentage, while other costs, including wages, are expected to increase by a mid-to-high single digit percentage.
“We enter 2023 with confidence and energy. We have clarity of mission, the right strategy and a focus on solutions for our customers,” said Morikis. “Above all, we have the right people, and we expect to outperform the market in 2023 just as we have in the past.
“At the same time, we will not be immune from what we expect to be a very challenging demand environment in 2023. Visibility beyond our first half of the year is limited. On the architectural side, U.S. housing will be under significant pressure this year. Slowing existing home sales and continued high inflation also will be headwinds.
“On the industrial side, we have already seen a slowdown in Europe, and the same is beginning to appear in the U.S. across several sectors. In China, COVID remains a factor and the trajectory of economic recovery is difficult to map. The U.S housing slowdown also will impact some of our industrial businesses, namely Industrial Wood and Coil.
“Our team is focused on winning new accounts and growing share of wallet in this challenging environment, while leveraging our exposure in more resilient end markets, including residential repaint, property maintenance, auto refinish, and packaging.”
PPG 2022 Q4 Financial Report
Global coatings company PPG released its fourth-quarter and full-year earnings report for 2022 on Jan. 19, reporting fourth-quarter net sales of about $4.2 billion, the same reported earnings a year ago. Constant currencies for the quarter were up 5%, driven by higher selling prices.
Tim Knavish, PPG President and Chief Executive Officer, noted that although the company experienced more severe commercial and supply disruptions in China and slowed manufacturing activity across most regions, PPG was able to make progress on its focus to achieve full operating margin recovery.
Year-over-year, PPG reported margin recovery with segment earnings growth of more than 20%.
In addition, PPG reported that full-year net sales revealed a record high, landing at roughly $17.7 billion, aided by 8% organic growth.
“We continued to make good progress on our focus to achieve full operating margin recovery, as year-over-year earnings improved in both segments despite more acute pandemic-related demand disruptions in China. This earnings improvement was driven by aggregate selling price increases that totaled 19% on a two-year stacked basis, as we remained focused on mitigating the significant cumulative cost inflation incurred the past two years,” said Knavish.
“Overall sales volumes declined 5% year over year as manufacturing activity slowed in most regions, including Asia Pacific where volumes were down a low double-digit percentage primarily due to the pandemic-related impacts in China.”
Q4 by Segment
PPG’s Performance Coatings segment recorded net sales of just under $2.5 billion, down 1% year over year. The company attributes its slight decline in sales primarily to sales volumes, the impact of divestitures, the wind-down of business in Russia, and unfavorable foreign currency translation impacts which were reportedly offset by selling price increases in all businesses.
PPG noted that excluding Asia, broad supply chain disruptions continued to moderate during the quarter, with the most significant remaining challenges impacting the aerospace coatings business. Despite these impacts, aerospace coatings sales volumes remained robust and order backlogs remained at historic highs.
Segment income for the quarter was up 12% from a year ago, reporting $272 million. The company shared that the uptick was primarily due to higher selling prices and restructuring cost savings which more than offset cost inflation, the impact of lower sales volumes, unfavorable foreign currency translation and increased manufacturing costs.
Within the segment, PPG Comex was reported to deliver another strong quarter, finishing with over 5,100 concessionaire locations, up about 3% from 2021. Automotive refinish coatings organic sales grew by a low double-digit percentage, which the company shares were driven by higher selling prices and sales volumes.
Organic sales in the protective and marine coatings business declined by a low single-digit percentage, primarily due to pandemic-related disruptions in China.
“As anticipated, demand remained soft in global architectural do-it-yourself (DIY) coatings. In Europe, aggregate industrial activity weakened sequentially, and sales volumes were down a mid-single-digit percentage; however, our quarterly operating earnings in that region were consistent with prior-year levels, driven by strong price realization and cost management,” commented Knavish.
“We delivered record net sales in our automotive refinish and PPG Comex coatings businesses reflecting our leading products and strong commercial relationships. Global aerospace demand continued to recover leading to strong year-over-year organic sales growth of about 20%, even though certain supply chain challenges remained.”
The Industrial Coatings segment had Q4 net sales of about $1.7 billion, or 1% higher than the previous year. PPG attributes the modest net sales increase to higher selling prices across all businesses partially offset by lower sales volumes, unfavorable foreign currency translation, and the wind-down of business in Russia.
Segment income for the quarter was also up nearly 50%, reporting $155 million in sales, which PPG attributes to higher selling prices and restructuring cost savings, partially offset by lower sales volumes, increased raw material and energy costs, and unfavorable foreign currency translation.
FY 2022, Looking Ahead
The company’s 2021 full-year reported net income from continuing operations was about $1 billion, or $4.33 per diluted share, versus $1.4 billion, or $5.93 per diluted share, in 2021. Full-year 2022 adjusted earnings per diluted share from continuing operations was $6.05 compared to $6.77 in 2021.
Full-year 2022 reported net sales from continuing operations were approximately $17.6 billion, up about 5% versus the prior year. Organic sales were higher by 8% driven by higher selling prices.
For 2022, the company paid $570 million in dividends. In addition to 2022 numbers, PPG also released a list of Q1 2023 forecasts, which includes:
- Aggregate sales volumes down a mid-single-digit percentage year over year;
- Corporate expenses of between $90 million and $95 million; higher than prior year, partially due to increasing pension costs (non-cash) and prior-year adjustments to incentive compensation that are not expected to recur;
- Net interest expense of between $38 million and $40 million;
- Effective tax rate of 22% to 24%;
- Reported EPS of $0.95 to $1.05; and
- Adjusted EPS of $1.10 to $1.20, excluding amortization expense of $0.13 and costs related to previously approved and communicated business restructuring of $0.02.
“Looking ahead, we remain highly focused on building further momentum to restore margins in line with our historical profile. In the first quarter, we will continue to prioritize supporting our customers through superior service and products, executing our cost-savings initiatives, and optimizing inventory. We expect the overall demand environment to remain consistent sequentially with the fourth quarter with soft economic activity remaining in Europe and China,” said Knavish.
“However, as the year progresses, we anticipate several positive catalysts that will enable earnings improvement, including certain PPG commercial initiatives with our valued customers and the continued rebound in demand for our technology-advantaged aerospace products. Other catalysts include moderating raw material costs, coatings demand stabilization in Europe beginning in the second quarter, and strong economic recovery in China as the pandemic reopening progresses. Finally, with fewer supply chain disruptions we expect ample commodity raw material availability and improved manufacturing efficiencies.
“Lastly, I am looking forward to leading PPG in my new role and want to thank our customers for selecting PPG as their supplier of choice, our shareholders for their confidence, and our global employees who demonstrate The PPG Way by making it happen every day.”
