01—Abstract
Summary
Summary of the 10-K filed February 16, 2023. 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 2022 net sales rose 5.1% to $17,652 milliona, driven by higher selling prices (+11%) and acquisition-related sales (+3%), partly offset by unfavorable foreign currency translation (-5%) and lower sales volumes (-3%). Income before income taxes fell to $1,381 million from $1,815 million, primarily due to raw material and other cost inflation, lower sales volumes, unfavorable currency translation, higher manufacturing costs from supply and labor disruptions, and impairment and other related charges of $245 million, largely tied to the wind down of Russian operations. Diluted earnings per share from continuing operations were $4.33, versus $5.93 in 2021; adjusted diluted EPS from continuing operations was $6.05, versus $6.77.
Cash from operating activities declined to $963 millionb from $1,562 million, reflecting a larger working capital build. The company paid $570 million in dividends, deployed $114 million for acquisitions and $518 million for capital expenditures, and repurchased $190 million of stock. Cash and short-term investments totaled $1,154 million at year-end, and total debt was $6,806 million.
Management's 2023 outlook calls for softening global economic activity, lower first-quarter sales volumes in the mid-single-digit percentage range, a 2023 effective tax rate of 22% to 24%, and restructuring savings of at least $60 millionc. The filing also notes ongoing asbestos and environmental exposures, with $217 million reserved for environmental remediation and $51 million reserved for asbestos-related claims at year-end. Management believes these matters will not have a material effect on the company's financial position or liquidity, though they may be material to results in any particular period.
Leadership transitions take effect January 2023, with Timothy M. Knavish becoming President and Chief Executive Officer and Michael H. McGarry becoming Executive Chairman.
02—Key points
Key Highlights
- Net sales of $17,652 million in 2022, up 5.1% from $16,802 million, driven by a double-digit contribution from higher selling prices (+11%) that offset unfavorable currency translation (-5%) and lower volumes (-3%).
- Income before income taxes declined to $1,381 million from $1,815 million, reflecting raw material and cost inflation, lower volumes, and $245 million of impairment and other related charges (largely Russia wind down).
- Diluted EPS from continuing operations of $4.33 versus $5.93 in 2021; adjusted diluted EPS of $6.05 versus $6.77.
- Operating cash flow fell to $963 million from $1,562 million, mainly due to a larger working capital increase; operating working capital rose to 16.9% of annualized fourth-quarter sales from 13.7%.
- Shareholder returns included $570 million in dividends (51st annual per-share increase) and $190 million of share repurchases; about $1.1 billion remained under the repurchase authorization.
- Segment results: Performance Coatings net sales of $10,694 million (income of $1,399 million) and Industrial Coatings net sales of $6,958 million (income of $643 million), both down in segment income year over year.
- Outlook for 2023 expects softer global economic activity, a 2023 effective tax rate of 22% to 24%, capital expenditures of $500 million to $550 million, and at least $60 million of restructuring savings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, PPG Industries kept $0.07.
- Revenue$15.61B100.0%
- Cost of revenue−$9.97B63.9%
- Gross profit$5.64B36.1%
- Operating costs−$3.60B23.0%
- Operating income$2.04B13.1%
- Interest, other & tax−$1.02B6.5%
- Net income$1.03B6.6%
Where FY2022 revenue went
$15.61B- Cost of revenue: $9.97B, 64% of revenue
- SG&A: $3.04B, 19% of revenue
- Net income: $1.03B, 6.6% of revenue
- R&D: $457.0M, 2.9% of revenue
- Other operating costs: $103.0M, 0.7% of revenue
- Interest, other & tax: $1.02B, 6.5% of revenue
Kept 6.6% as net incomeOther operating costs $103.0M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 16, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $15.61B$16.80B | −7.1% |
| Cost of Revenue | $9.97B$10.29B | −3.0% |
| Gross Profit | $5.64B$6.52B | −13.5% |
| R&D Expenses | $457.00M$463.00M | −1.3% |
| SG&A Expenses | $3.04B$3.78B | −19.7% |
| Operating Income | $2.04B$2.17B | −5.9% |
| Interest Expense | $167.00M$121.00M | +38.0% |
| Net Income | $1.03B$1.46B | −29.7% |
| EPS (Basic) | $4.34$6.06 | −28.4% |
| EPS (Diluted) | $4.32$6.01 | −28.1% |
| Shares Outstanding (Basic) | 236.10M237.60M | −0.6% |
| Shares Outstanding (Diluted) | 237.30M239.40M | −0.9% |
05—Questions
Frequently Asked Questions
Why did PPG's earnings decline in 2022 even though sales increased?
Net sales rose 5.1% to $17,652 million, but income before income taxes fell $434 million to $1,381 million. The filing attributes the decline to raw material and other cost inflation, lower sales volumes, unfavorable foreign currency translation, higher manufacturing costs from supply and labor disruptions, and impairment and other related charges, partially offset by higher selling prices.
How much did the Russia wind down affect results?
The company recorded $290 million of impairment and other related charges in the first quarter 2022 tied to the wind down of Russian operations, later partly offset by $63 million of income from reserve releases and recoveries. Russian net sales were approximately 1% of PPG net sales in both 2022 and 2021.
How strong is PPG's balance sheet and liquidity position?
PPG ended 2022 with $1,154 million in cash and short-term investments and total long-term debt of $6,806 million. As of December 31, 2022, its Total Indebtedness to Total Capitalization ratio under its credit agreements was 49%, against a covenant maximum of 60%. The company reports full compliance with its restrictive covenants.
What are the main risks and legal exposures disclosed?
Key risks include raw material price increases and supply shortages, foreign currency fluctuations, intense competition, and business disruptions. PPG faces asbestos claims with $51 million in reserves and environmental remediation with $217 million reserved, plus reasonably possible unreserved environmental losses of $100 million to $200 million. Management believes these will not materially affect financial position or liquidity, though outcomes may be material to results in a particular period.
What changes in leadership were announced for 2023?
Michael H. McGarry, previously Chairman and Chief Executive Officer, became Executive Chairman effective January 1, 2023. Timothy M. Knavish, previously Chief Operating Officer, became President and Chief Executive Officer effective the same date.
06—Continue