01—Abstract
Summary
Summary of the 10-K filed February 17, 2022. Cited figures are marked; the original filing is the authoritative source.
PPG Industries, Inc. reported record 2021 net sales of $16,802 milliona, up from $13,834 million in 2020, with net sales up 21.5% year over year.
Growth was driven by acquisition-related sales (+9%), higher sales volumes (+5%), higher selling prices (+5%) and favorable foreign currency translation (+2%). Cost of sales rose to $10,286 millionb, or 61.2% of net sales versus 56.2% in 2020, as raw material and logistics cost inflation and supply constraints weighed on margins. Income before income taxes was $1,815 million versus $1,362 million, and diluted earnings per share from continuing operations were $5.93 versus $4.44.
Adjusted diluted EPS from continuing operations, which excludes certain items, was $6.77c versus $6.12. The company completed several acquisitions in 2021, including Tikkurila, Wörwag, Cetelon and VersaFlex, with $2.1 billion deployed for acquisitions during the year. Cash from operating activities from continuing operations declined 26.6% to $1,562 million, primarily due to higher working capital.
Management expects raw material costs to be between 25%d and 30% higher year over year in the first quarter of 2022, and expects sales volumes in the first quarter to be lower by a mid-single-digit percentage compared with the prior year. Total indebtedness to total capitalization was 48% at December 31, 2021, against a covenant maximum of 60%.
The filing also discloses a $133 million pretax income benefit from an asbestos-related claims reserve adjustment, which reduced reserves to $54 million, and $282 million of reserves for environmental remediation. Management believes the outcome of pending litigation and environmental contingencies will not have a material effect on the company's financial position or liquidity, though these outcomes could be material to results in a particular period.
02—Key points
Key Highlights
- Record net sales of $16.80 billion in 2021, up 21.5% from $13.83 billion in 2020, with acquisitions contributing 9 percentage points of growth.
- Income before income taxes rose to $1,815 million from $1,362 million; diluted EPS from continuing operations was $5.93 versus $4.44.
- Adjusted diluted EPS from continuing operations was $6.77 versus $6.12, excluding items such as acquisition-related amortization and a $133 million asbestos reserve reduction.
- Cost of sales rose to 61.2% of net sales from 56.2%, driven by raw material and logistics cost inflation and supply constraints.
- Cash from operating activities from continuing operations fell 26.6% to $1,562 million, mainly due to working capital increases.
- Acquisitions totaled $2.1 billion in 2021, including Tikkurila; the company also agreed in February 2022 to acquire the powder coatings business of Arsonsisi S.p.A.
- Management guides to first-quarter 2022 raw material costs 25% to 30% higher year over year, and a 2022 effective tax rate of 22% to 23%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, PPG Industries kept $0.09.
- Revenue$16.80B100.0%
- Cost of revenue−$10.29B61.2%
- Gross profit$6.52B38.8%
- Operating costs−$4.34B25.9%
- Operating income$2.17B12.9%
- Interest, other & tax−$711.0M4.2%
- Net income$1.46B8.7%
Where FY2021 revenue went
$16.80B- Cost of revenue: $10.29B, 61% of revenue
- SG&A: $3.78B, 22% of revenue
- Net income: $1.46B, 8.7% of revenue
- R&D: $463.0M, 2.8% of revenue
- Other operating costs: $102.0M, 0.6% of revenue
- Interest, other & tax: $711.0M, 4.2% of revenue
Kept 8.7% as net incomeOther operating costs $102.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 17, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $16.80B$13.83B | +21.5% |
| Cost of Revenue | $10.29B$7.78B | +32.3% |
| Gross Profit | $6.52B$6.06B | +7.6% |
| R&D Expenses | $463.00M$401.00M | +15.5% |
| SG&A Expenses | $3.78B$3.39B | +11.5% |
| Operating Income | $2.17B$2.11B | +2.9% |
| Interest Expense | $121.00M$138.00M | −12.3% |
| Net Income | $1.46B$1.07B | +35.9% |
| EPS (Basic) | $6.06$4.47 | +35.6% |
| EPS (Diluted) | $6.01$4.45 | +35.1% |
| Shares Outstanding (Basic) | 237.60M236.80M | +0.3% |
| Shares Outstanding (Diluted) | 239.40M237.90M | +0.6% |
05—Questions
Frequently Asked Questions
How did PPG's sales and earnings perform in 2021?
Net sales reached a record $16,802 million, up 21.5% from $13,834 million. Income before income taxes was $1,815 million versus $1,362 million, and diluted EPS from continuing operations was $5.93 versus $4.44. Growth came from acquisition-related sales, higher volumes and higher selling prices, partly offset by raw material and logistics cost inflation.
What drove the increase in cost of sales and what is the outlook for raw materials?
Cost of sales, exclusive of depreciation and amortization, rose to $10,286 million, or 61.2% of net sales, from 56.2% in 2020. The increase was driven by raw material supply constraints, higher energy prices, transportation shortages and ocean freight costs. PPG expects raw material costs to be 25% to 30% higher year over year in the first quarter of 2022 and expects the negative impact of raw material inflation to lessen as 2022 progresses.
How much did PPG spend on acquisitions and how is its leverage?
PPG deployed $2.1 billion for acquisitions in 2021, including Tikkurila for $1.7 billion net of cash acquired. Total indebtedness to total capitalization was 48% at December 31, 2021, below the 60% maximum required under its credit agreements. Long-term debt was $6,572 million at year-end, up from $5,171 million.
What was the effect of the asbestos reserve adjustment and what remains reserved?
In the fourth quarter of 2021, PPG reduced its asbestos-related claims reserve, recording income of $133 million. The remaining asbestos-related reserves totaled $54 million at December 31, 2021, down from $190 million a year earlier. Management believes this reserve is sufficient to cover current and estimable future asbestos liabilities.
What are PPG's shareholder returns and capital allocation priorities?
Dividends paid totaled $536 million in 2021, and the quarterly dividend was raised to $0.59 per share, marking the 50th successive year of increased annual per-share dividends. The company repurchased $210 million of stock in 2021 and had about $1.3 billion remaining under its repurchase authorization. Management stated that its 2022 cash deployment focus is business acquisitions alongside debt reduction.
06—Continue