PPG reported its third-quarter financial results for 2023, posting quarterly net sales of $4.6 billion, aided by a resilient business portfolio. Adjusted EPS is up 25% from third quarter last year to $2.07. Year-to-date operating cash flow is over $1.5 billion, up more than $1.1 billion same quarter last year.
Performance Coatings net sales increased 6% to $4.6 billion, led by higher selling prices and favorable foreign currency translation.
Demand for PPG’s aerospace products remained strong as the business delivered mid-teen percentage organic sales growth year-over-year. In the architectural coatings Americas and Asia-Pacific business, PPG Comex delivered record sales for the 13th consecutive quarter, continuing to benefit from a growing Mexican economy. Overall organic sales in the U.S. architectural coatings business decreased a low single-digit percentage, as continued growth in the professional contractor channel was offset by soft do-it-yourself demand. Demand for architectural coatings in the EMEA region is nearing trough levels as sales volumes were essentially flat. Automotive refinish coatings organic sales increased by a low single-digit percentage. Although strong year-over-year growth was reported in Europe, Asia, and Latin America, the growth was offset by softer demand in the U.S.
Segment income increased by 25% versus the prior year, primarily due to higher selling prices and moderating input costs which are trending down from historically high levels. Segment operating margins improved by 230 basis points year-over-year.
Industrial Coatings segment net sales were flat compared to the third quarter 2022, maintaining $1.7 billion. Lower sales volumes were offset by higher selling prices, a net benefit from acquisitions and divestitures, and favorable foreign currency translation.
Automotive OEM coatings organic sales increased by a low single-digit percentage with higher selling prices in all regions and higher aggregate volumes. Growth in sales volumes was led by the company’s strong positions in China and Mexico. Offsetting this sales volume growth was lower global industrial activity which drove softer sales activity in all other businesses in the operating segment. Packaging coatings organic sales were lower by a high single-digit percentage driven by softer demand in each major region and most product categories.
Segment income was higher than the prior year by $54 million, or 28%, primarily due to higher selling prices and raw material costs moderating from historically high levels, partially offset by lower sales volumes. Segment margins improved by 300 basis points compared to the third quarter 2022.
At quarter end, the company had cash and short-term investments totaling nearly $1.3 billion. Net debt was $4.9 billion — about $800 million lower compared to the prior-year third quarter. Corporate expenses were about $90 million in the third quarter, in-line with the company’s expectations communicated at the outset of the quarter and higher than the prior year primarily due to performance-based incentive compensation. Acquisitions and business restructuring programs delivered about $15 million of incremental cost savings in the quarter.
Tim Knavish, PPG chairman and CEO, commented on the quarter:
I am proud of the PPG team for delivering outstanding results in a challenging global demand environment, including a slower-than-expected recovery in China. We achieved record third-quarter net sales and adjusted earnings per share aided by the breadth and resiliency of our business portfolio. This included strong operating performance with both of our operating segments delivering at least 25% earnings growth, led by our aerospace, automotive original equipment manufacturer (OEM), automotive refinish coatings, and PPG Comex businesses, all of which also produced record sales for a third quarter.
Aggregate segment margin increased 260 basis points over the same quarter last year, marking the fourth consecutive quarter of year-over-year margin improvement. Additionally, our earnings growth and improved working capital have contributed to record operating cash flow of more than $1.5 billion year to date.
Looking ahead, while demand in Europe and China are at or nearing trough levels and will likely present growth opportunities in 2024, we anticipate soft global macroeconomic conditions will persist in the fourth quarter. Overall, we remain confident that our technology-advantaged products and strong brands will drive our outperformance versus the markets we supply, including continued growth in our aerospace and PPG Comex businesses. In addition, supply conditions have returned to historical norms and raw material availability remains ample.
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