01—Abstract
Summary
Summary of the 10-K filed February 18, 2016. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported 2015 net sales of $15.33 billiona, essentially flat versus $15.36 billion in 2014.
Management attributed the flat result to unfavorable foreign currency translation (7%) offset by sales from acquired businesses (6%) and higher volumes (1%). Income before income taxes rose to $1.88 billionb from $1.42 billion, and net income from continuing operations was $1.41 billion, or $5.14 per diluted share, versus $4.05 in 2014. Adjusted earnings per diluted share, a non-GAAP measure reconciled in the filing, were $5.69 compared with $4.88.
The company cites a $140 millionc pre-tax business restructuring charge in 2015, with expected full-year pre-tax savings of about $105 million by 2017. Segment results were mixed. Performance Coatings net sales rose 0.8% to $8.77 billion and segment income rose 8.0% to $1.30 billion, driven largely by the Comex acquisition.
Industrial Coatings net sales fell 1.4% to $5.48 billiond, while segment income increased 3.6% to $985 million. Glass segment income improved 69.1% to $137 million on favorable product mix and lower manufacturing costs, though the Fresno flat glass facility faced a force majeure and is undergoing major repairs in 2016. Cash from continuing operations was $1.84 billion, and the company returned value through $751 million of share repurchases and $383 million of dividends.
Investors should also note ongoing liabilities. The proposed Pittsburgh Corning asbestos settlement carries a recorded obligation of $1.05 billion, with PPG expecting funding in the first half of 2016.
Environmental reserves total $233 million, and the filing discloses reasonably possible unreserved environmental losses of $75 million to $200 million. For 2016, management guided to currency translation headwinds of $550 million to $600 million on sales and $70 million to $80 million on pre-tax income, and expects an adjusted effective tax rate of 24.5% to 25.5%.
02—Key points
Key Highlights
- Net sales were $15.33 billion, essentially flat versus $15.36 billion in 2014, with currency translation (7%) offset by acquisitions (6%) and volume (1%).
- Diluted EPS from continuing operations was $5.14, up from $4.05; adjusted diluted EPS (non-GAAP) was $5.69 versus $4.88.
- Income before income taxes was $1.88 billion, and the effective tax rate was 24.2%, compared with 18.3% in 2014.
- A $140 million restructuring charge was recorded in 2015, with expected full-year pre-tax savings of about $105 million by 2017.
- Performance Coatings segment income rose 8.0% to $1.30 billion, while Industrial Coatings segment income rose 3.6% to $985 million.
- Operating cash flow from continuing operations was $1.84 billion, and capital spending including acquisitions totaled $796 million.
- The proposed asbestos settlement carries a recorded obligation of $1.05 billion, and environmental reserves total $233 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 18, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $14.24B$14.79B | −3.7% |
| R&D Expenses | $484.00M$499.00M | −3.0% |
| SG&A Expenses | $3.58B$3.70B | −3.0% |
| Operating Income | $2.29B$2.19B | +4.4% |
| Interest Expense | $125.00M$187.00M | −33.2% |
| Net Income | $1.41B$2.10B | −33.1% |
| EPS (Basic) | $5.18$7.60 | −31.8% |
| EPS (Diluted) | $5.14$7.52 | −31.6% |
| Shares Outstanding (Basic) | 271.40M276.60M | −1.9% |
| Shares Outstanding (Diluted) | 273.60M279.60M | −2.1% |
05—Questions
Frequently Asked Questions
What drove PPG's earnings growth in 2015 despite flat sales?
Income before income taxes rose to $1.88 billion from $1.42 billion, and diluted EPS from continuing operations rose to $5.14 from $4.05. The filing attributes this to segment income gains, including the Glass segment's 69.1% increase, along with lower interest expense of $86 million versus $137 million in 2014. The 2014 results also included a $317 million debt refinancing charge that did not recur.
What is the status of the asbestos settlement?
The settlement arrangement related to Pittsburgh Corning remains subject to court proceedings and closing conditions. In January 2016, all pending appeals of the Pittsburgh Corning Plan of Reorganization were withdrawn, and PPG expects funding to occur in the first half of 2016. PPG's aggregate cash payments under the settlement total approximately $825 million, plus PPG stock and other assets valued at $290 million. The recorded total obligation was $1.05 billion at December 31, 2015.
What currency and cost headwinds does PPG expect in 2016?
Based on mid-January 2016 exchange rates, management expects currency translation to unfavorably affect 2016 sales by $550 million to $600 million and pre-tax income by about $70 million to $80 million. It also expects interest expense, net, to be about $20 million higher than in 2015, and an adjusted effective tax rate of 24.5% to 25.5%. Management noted that currency rates were volatile and results could differ from this guidance.
How much capital did PPG return to shareholders and how much did it spend on acquisitions?
In 2015 PPG repurchased about $750 million of common stock (7.0 million shares) and paid $383 million in dividends, and it raised its per-share dividend by 7%. Approximately $920 million remained under the current repurchase authorization at year end. Acquisitions net of cash acquired totaled $320 million, with a total purchase price of $440 million for several bolt-on deals, including Comex-related and Consorcio Latinoamericano purchases.
06—Continue