01—Abstract
Summary
Summary of the 10-K filed February 21, 2019. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. manufactures and distributes paints, coatings and specialty materials through two reportable segments: Performance Coatings and Industrial Coatings.
In 2018, net sales rose to $15,374 milliona from $14,748 million in 2017, and income from continuing operations was $1,340 million, with earnings per diluted share from continuing operations of $5.40 versus $5.31 in 2017. Adjusted earnings per diluted share, a non-GAAP measure reconciled in the filing, were $5.92 versus $5.86. Segment income fell in both segments: Performance Coatings was $1,300 million and Industrial Coatings was $818 million, with the decline attributed mainly to raw material and logistics cost inflation.
Management cited a mid-single-digit percentage rise in raw material costs in 2018 and expects coatings raw material prices to increase a low-single-digit percentage in the first half of 2019. The company reported cash from operating activities of $1,487 millionb from continuing operations, and it repurchased 15.9 million shares for $1,721 million. Dividends paid totaled $453 million.
Total debt rose after the issuance of $992 millionc in notes in February 2018, and the ratio of total debt to total debt and equity was 52% at December 31, 2018, up from 43% in 2017. The company guided to a 2019 effective tax rate of 23% to 25% and expects unfavorable foreign currency translation to reduce 2019 sales by $400 million to $500 million. The filing also discloses material legal and regulatory matters.
PPG has self-reported accounting matters to the SEC and is cooperating with an SEC investigation and a U.S. Attorney's Office investigation relating to restated 2017 and 2016 financial statements, and a putative securities class action is pending. The company carries $291 milliond of environmental remediation reserves, mainly for New Jersey Chrome, and it reports approximately 460 open asbestos-related claims. Management believes these matters will not have a material effect on its consolidated financial position or liquidity, though outcomes could be material to results in a given period.
02—Key points
Key Highlights
- Net sales were $15,374 million in 2018, up from $14,748 million in 2017 and $14,270 million in 2016.
- Earnings per diluted share from continuing operations were $5.40 in 2018 versus $5.31 in 2017; adjusted earnings per diluted share were $5.92 versus $5.86.
- Performance Coatings segment income was $1,300 million and Industrial Coatings segment income was $818 million, down from $1,313 million and $979 million in 2017, respectively.
- Cash from operating activities from continuing operations was $1,487 million; the company repurchased 15.9 million shares for $1,721 million and paid $453 million in dividends.
- The ratio of total debt to total debt and equity rose to 52% at December 31, 2018 from 43% in 2017, after $992 million of new notes were issued in February 2018.
- The company is cooperating with SEC and U.S. Attorney's Office investigations related to the restatement of 2017 and 2016 financial statements, and a securities class action is pending.
- Environmental reserves totaled $291 million at December 31, 2018, with the New Jersey Chrome reserve at $151 million; 2019 environmental cash outlays are expected to be $80 million to $100 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, PPG Industries kept $0.09.
- Revenue$15.37B100.0%
- Cost of revenue−$9.00B58.5%
- Gross profit$6.37B41.5%
- Operating costs−$4.25B27.7%
- Operating income$2.12B13.8%
- Interest, other & tax−$777.0M5.1%
- Net income$1.34B8.7%
Where FY2018 revenue went
$15.37B- Cost of revenue: $9.00B, 59% of revenue
- SG&A: $3.57B, 23% of revenue
- Net income: $1.34B, 8.7% of revenue
- R&D: $464.0M, 3.0% of revenue
- Other operating costs: $218.0M, 1.4% of revenue
- Interest, other & tax: $777.0M, 5.1% of revenue
Kept 8.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 21, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $15.37B$14.75B | +4.2% |
| Cost of Revenue | $9.00B$8.21B | +9.6% |
| Gross Profit | $6.37B$6.54B | −2.5% |
| R&D Expenses | $464.00M$472.00M | −1.7% |
| SG&A Expenses | $3.57B$3.55B | +0.5% |
| Operating Income | $2.12B$2.29B | −7.6% |
| Interest Expense | $118.00M$105.00M | +12.4% |
| Net Income | $1.34B$1.59B | −15.9% |
| EPS (Basic) | $5.50$6.22 | −11.6% |
| EPS (Diluted) | $5.47$6.18 | −11.5% |
| Shares Outstanding (Basic) | 243.90M256.10M | −4.8% |
| Shares Outstanding (Diluted) | 245.40M257.80M | −4.8% |
05—Questions
Frequently Asked Questions
How did PPG's profitability change in 2018?
Net sales increased to $15,374 million from $14,748 million. Income from continuing operations was $1,340 million versus $1,390 million in 2017, and earnings per diluted share from continuing operations rose to $5.40 from $5.31. Income tax expense fell to $353 million from $615 million, with the effective tax rate at 20.9% versus 30.7% in 2017.
What drove the decline in segment income?
The filing attributes the decline in both segments mainly to raw material and logistics cost inflation. Performance Coatings segment income fell $13 million, partly offset by higher selling prices, and Industrial Coatings segment income fell $161 million, partly offset by higher selling prices and lower manufacturing costs.
What is the company's outlook for 2019?
PPG expects coatings raw material prices to rise a low-single-digit percentage in the first half of 2019, further selling price increases, and an effective tax rate from continuing operations of 23% to 25%. It expects unfavorable foreign currency translation to reduce 2019 sales by $400 million to $500 million and income before income taxes by $50 million to $70 million. Restructuring savings are expected to be $60 million to $70 million in 2019.
What legal and regulatory matters could affect investors?
PPG self-reported accounting matters to the SEC and is cooperating with an SEC investigation and a U.S. Attorney's Office investigation tied to the restatement of prior financial statements. A putative securities class action filed in May 2018 remains pending. The company also faces about 460 open asbestos-related claims and reserves of approximately $180 million for claims not channeled to the Pittsburgh Corning trust. Management believes these matters will not have a material effect on consolidated financial position or liquidity, but outcomes could be material to results in a particular period.
How is PPG managing its capital allocation and balance sheet?
In 2018 PPG repurchased shares for $1,721 million and paid $453 million in dividends, while also deploying about $380 million for acquisitions. It issued $992 million of notes in February 2018. Approximately $1.8 billion remained under its share repurchase authorization at year-end, and total debt to total debt and equity rose to 52% from 43%.
06—Continue