01—Abstract
Summary
Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported 2017 net sales of $14.75 billiona, up 3% from $14.27 billion in 2016, driven primarily by higher sales volumes and acquisition-related sales, with cost of sales (exclusive of depreciation and amortization) rising 7% to $8.2 billion on raw material cost inflation.
Income from continuing operations was $1,371 millionb, or $5.32 per diluted share, versus $2.05 in 2016, which had absorbed a $968 million pre-tax pension settlement charge. Adjusted earnings per diluted share from continuing operations were $5.87, compared with $5.67 in 2016. The 2017 effective tax rate was 30.7%, including a $134 million net charge from the U.S. Tax Cuts and Jobs Act, which the company says is provisional and may change as further regulations are issued.
The company completed the sale of its North American fiber glass business in September 2017 for approximately $540 millionc in pre-tax cash proceeds, exiting all glass operations and presenting that segment as discontinued operations. Cash from operating activities from continuing operations rose to $1,556 million from $1,218 million, and PPG ended the year with $1,491 million in cash and short-term investments. The company repurchased $813 million of stock, paid $434 million in dividends, and deployed $325 million for business acquisitions, including The Crown Group.
PPG states it expects to deploy at least $3.5 billiond for acquisitions and share repurchases across 2017 and 2018 combined, with $1.1 billion deployed in 2017, and it authorized a new $2.5 billion repurchase program in December 2017, leaving approximately $3.6 billion remaining under its authorizations. Management guided to a 2018 effective tax rate of 23.0% to 24.0%, and expects coatings raw material prices to rise a mid-single-digit percentage in the first half of 2018. The company also disclosed reserves of $258 million for environmental remediation and reasonably possible additional unreserved losses of $100 million to $200 million, and it stated that the outcome of its lawsuits and claims, including asbestos-related claims, is not expected to have a material effect on its consolidated financial position or liquidity.
02—Key points
Key Highlights
- Net sales of $14.75 billion in 2017, up from $14.27 billion in 2016, driven mainly by higher sales volumes and acquisition-related sales.
- Income from continuing operations of $1,371 million, or $5.32 per diluted share, versus $2.05 in 2016, which included a $968 million pre-tax pension settlement charge; adjusted diluted EPS from continuing operations was $5.87.
- Income tax expense included a $134 million net charge from the U.S. Tax Cuts and Jobs Act; the effective tax rate was 30.7% and the adjusted effective tax rate was 24.4%.
- Cash from operating activities from continuing operations rose to $1,556 million from $1,218 million, largely reflecting the absence of the 2016 Pittsburgh Corning asbestos trust funding.
- Sold North American fiber glass business to Nippon Electric Glass for approximately $540 million in pre-tax cash proceeds, completing the exit from all glass operations.
- Returned capital through $813 million in share repurchases and $434 million in dividends, with a 13% increase in the per-share dividend; a new $2.5 billion repurchase program was approved in December 2017.
- Guided to a 2018 effective tax rate of 23.0% to 24.0% and expects coatings raw material prices to rise a mid-single-digit percentage in the first half of 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, PPG Industries kept $0.11.
- Revenue$14.75B100.0%
- Cost of revenue−$8.21B55.7%
- Gross profit$6.54B44.3%
- Operating costs−$4.25B28.8%
- Operating income$2.29B15.5%
- Interest, other & tax−$698.0M4.7%
- Net income$1.59B10.8%
Where FY2017 revenue went
$14.75B- Cost of revenue: $8.21B, 56% of revenue
- SG&A: $3.55B, 24% of revenue
- Net income: $1.59B, 11% of revenue
- R&D: $472.0M, 3.2% of revenue
- Other operating costs: $221.0M, 1.5% of revenue
- Interest, other & tax: $698.0M, 4.7% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $14.75B$14.27B | +3.3% |
| Cost of Revenue | $8.21B— | — |
| Gross Profit | $6.54B— | — |
| R&D Expenses | $472.00M$473.00M | −0.2% |
| SG&A Expenses | $3.55B$3.56B | 0.0% |
| Operating Income | $2.29B$2.38B | −3.8% |
| Interest Expense | $105.00M$125.00M | −16.0% |
| Net Income | $1.59B$873.00M | +82.6% |
| EPS (Basic) | $6.22$3.29 | +89.1% |
| EPS (Diluted) | $6.18$3.27 | +89.0% |
| Shares Outstanding (Basic) | 256.10M265.60M | −3.6% |
| Shares Outstanding (Diluted) | 257.80M267.40M | −3.6% |
05—Questions
Frequently Asked Questions
What drove PPG's sales growth in 2017?
Net sales increased $480 million to $14.75 billion. The filing attributes the increase to acquisition-related sales (about 1%), higher sales volumes (about 1%), slightly favorable foreign currency translation and slightly higher selling prices. Acquired businesses added over $200 million in sales, primarily MetoKote, DEUTEK, Univer and The Crown Group.
Why did reported earnings per share rise so sharply in 2017?
Diluted EPS from continuing operations rose to $5.32 from $2.05 mainly because 2016 included a $968 million pre-tax pension settlement charge, which was not repeated in 2017. The 2017 results were partly offset by the $134 million net charge from the U.S. Tax Cuts and Jobs Act. Adjusted diluted EPS, which excludes certain charges, was $5.87 in 2017 versus $5.67 in 2016.
How significant is the Tax Cuts and Jobs Act impact on PPG?
PPG recorded a net tax charge of $134 million in December 2017, consisting of about $250 million of tax on unrepatriated foreign earnings and about $125 million from remeasuring U.S. deferred tax balances, partly offset by benefits of about $150 million and other items. The company describes this as a provisional amount that may change as U.S. regulators issue further regulations during 2018, and it said the net charge was $37 million higher than previously reported.
How much cash is PPG returning to shareholders and what are its capital deployment plans?
In 2017 PPG repurchased $813 million of common stock and paid $434 million in dividends. The company is committed to deploying at least $2.4 billion on acquisitions and share repurchases in 2018 as part of its commitment to deploy at least $3.5 billion across 2017 and 2018 combined. It ended 2017 with approximately $3.6 billion remaining under its share repurchase authorizations.
What are the main environmental and litigation exposures disclosed?
PPG has $258 million reserved for environmental remediation, with the New Jersey Chrome sites accounting for $136 million of that reserve. The company estimates reasonably possible additional unreserved environmental losses of $100 million to $200 million. For litigation, including asbestos-related claims, management believes the outcome will not have a material effect on PPG's consolidated financial position or liquidity, though it may be material to results in a particular period.
06—Continue