01—Abstract
Summary
Summary of the 10-K filed February 16, 2017. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported 2016 net sales of $14.75 billiona, roughly flat versus $14.77 billion in 2015, as unfavorable foreign currency translation of about $400 million (3%) offset acquisition-related sales (+2%) and higher volumes (+1%).
Net income attributable to PPG was $877 millionb, or $3.28 per diluted share, but this was depressed by a $968 million pre-tax pension settlement charge tied to transferring about $1.8 billion of U.S. and Canadian pension obligations to insurers, and a $197 million business restructuring charge. Income from continuing operations was $564 million, or $2.11 per diluted share, versus $4.89 in 2015. The company reports adjusted diluted EPS from continuing operations of $5.82, up 7.2% from $5.43, excluding certain charges.
The company completed the sale of its flat glass business to Vitro for about $740 millionc in cash on October 1, 2016, and also divested its European fiber glass business and several joint venture interests, bringing total divestiture cash proceeds to about $1.1 billion. In the same year, PPG fully funded its obligation to the Pittsburgh Corning asbestos settlement trust, with total cash obligations of $813 million pre-tax, and returned capital through $1.05 billion of share repurchases and $414 million of dividends. Cash and short-term investments ended the year at about $1.9 billion.
Management announced a new 2017 and 2018 combined cash deployment target of $2.5 billion to $3.5 billiond for acquisitions and share repurchases, and guided to 2017 foreign currency headwinds of $375 million to $425 million on sales and $70 million to $90 million on pre-tax income. After the divestitures, PPG reports three segments: Performance Coatings (2016 net sales $8.58 billion, segment income $1.31 billion), Industrial Coatings ($5.69 billion, $1.04 billion) and Glass ($481 million, $53 million).
Long-term debt was $3.79 billion at year-end, and the debt-to-total-capitalization ratio was 47%. Management expects 2017 operating savings from the new restructuring program of about $40 million to $50 million, with about $125 million of annual savings once fully implemented.
02—Key points
Key Highlights
- Net sales of $14.75 billion in 2016, essentially flat versus 2015, with foreign currency translation reducing sales by about $400 million.
- Diluted EPS from continuing operations of $2.11, down from $4.89, driven by a $968 million pre-tax pension settlement charge; adjusted diluted EPS rose 7.2% to $5.82.
- Divestitures of flat glass and European fiber glass businesses and related joint ventures generated about $1.1 billion of total cash proceeds.
- Fully funded the Pittsburgh Corning asbestos settlement trust in 2016 with $813 million of pre-tax cash obligations, with no further trust obligations.
- New $197 million business restructuring program announced in December 2016, targeting about 1,700 net position reductions and about $125 million of annual savings once fully implemented.
- Returned $1.05 billion through share repurchases and $414 million in dividends in 2016; new 2017–2018 cash deployment target of $2.5 billion to $3.5 billion for acquisitions and buybacks.
- Cash and short-term investments of about $1.9 billion at year-end 2016, with the debt-to-total-capitalization ratio at 47%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 16, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $14.27B$14.24B | +0.2% |
| R&D Expenses | $473.00M$484.00M | −2.3% |
| SG&A Expenses | $3.56B$3.58B | −0.8% |
| Operating Income | $2.38B$2.29B | +4.2% |
| Interest Expense | $125.00M$125.00M | 0.0% |
| Net Income | $873.00M$1.41B | −37.9% |
| EPS (Basic) | $3.29$5.18 | −36.5% |
| EPS (Diluted) | $3.27$5.14 | −36.4% |
| Shares Outstanding (Basic) | 265.60M271.40M | −2.1% |
| Shares Outstanding (Diluted) | 267.40M273.60M | −2.3% |
05—Questions
Frequently Asked Questions
Why did PPG's reported earnings per share fall so sharply in 2016?
Reported diluted EPS from continuing operations fell to $2.11 from $4.89, primarily because of a $968 million pre-tax pension settlement charge from transferring about $1.8 billion of U.S. and Canadian pension obligations to insurers. The company also recorded a $197 million restructuring charge, a $82 million environmental remediation charge, and a $151 million net tax charge tied to funding the asbestos trust. On an adjusted basis, excluding these items, diluted EPS was $5.82, up 7.2% from $5.43.
How did currency and acquisitions affect PPG's 2016 sales?
Net sales were $14.751 billion, down $15 million from 2015. Unfavorable foreign currency translation reduced sales by about $400 million (3%), while acquired businesses added about $275 million (+2%) and higher sales volumes contributed 1%. The U.S. dollar strengthened against most currencies, notably the British pound, Mexican peso and Chinese yuan.
What did PPG do with its glass businesses in 2016?
PPG sold its flat glass business to Vitro S.A.B. de C.V. on October 1, 2016 for about $740 million in cash, recording a pre-tax gain of $421 million, and presented it as discontinued operations. It also sold its European fiber glass business to Nippon Electric Glass, divested its 50% interests in two PFG fiber glass joint ventures to Nan Ya Plastics, and sold its minority interest in Pittsburgh Glass Works. The Glass segment now consists of the North American fiber glass business, with 2016 net sales of $481 million.
What are PPG's capital allocation priorities going forward?
The company announced a cash deployment target of $2.5 billion to $3.5 billion for acquisitions and share repurchases over 2017 and 2018 combined. In 2016, it deployed $2.5 billion across 2015 and 2016 combined against its prior target, and it ended 2016 with about $1.9 billion remaining under its current share repurchase authorization. Dividends were raised 11% in April 2016 to $0.40 per share quarterly, marking the 45th consecutive annual increase.
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