PPG optimistic despite Q1 slump
Sales take a hit after loss of Lowe’s retail
Speaking to shareholders and employees at PPG’s annual meeting Thursday, company chairman Michael McGarry focused on the coatings giant’s positive news of 2018.
That included four acquisitions, a 4% jump in sales and volunteer paint projects its employees completed at schools, playgrounds and gardens in worldwide communities where it has operations.
Barely mentioned were the high-profile events that plagued PPG last year like an accounting scandal that is being investigated by the federal government and the business lost after the Lowe’s chain of home improvement stores made rival paint maker Sherwin-Williams its exclusive supplier.
“We made a lot of good acquisitions and had continued growth,” Mr. McGarry commented after the meeting held at the Fairmont hotel, Downtown.
Earlier Thursday, the coatings giant said first-quarter sales and income fell but adjusted earnings beat analysts’ estimates by 17 cents.
On that news, investors sent the stock to a 52-week high of $121.29 in early trading before it fell back to close at $119.86, up $2.47, or 2%.
Mr. McGarry told shareholders he’s confident that for all of 2019, PPG can grow sales by 3% to 5% and generate adjusted earnings per share growth of 7% to 10%, excluding the impact of foreign currency rates.
Global sales last year were $15.4 billion and full-year adjusted earnings were $5.92 per share.
Mr. McGarry said he has “zero insight” about when the federal Securities and Exchange Commission and the U.S. Attorney’s office in Pittsburgh will complete their investigations into accounting practices that resulted in PPG firing its controller and restating some quarterly earnings from 2017 and 2018.
The accounting probe and other issues were cited by activist investor Nelson Peltz’s Trian Fund Management when it asked for PPG to separate its performance and industrial coatings segments, and to
replace Mr. McGarry with former company chairman Charles Bunch.
After the shareholders’ meeting Thursday, Mr. McGarry said a review of whether to split the coatings operations will be completed by June 30 when the second quarter ends.
PPG’s board has stood behind Mr. McGarry as chairman.
He said the company “talks to all of our shareholders” and Mr. Peltz hasn’t been treated any differently since Trian pushed for changes.
Earlier Thursday, PPG said the absence of its house paints on the shelves at Lowe’s, depressed demand for automotive paints in China, and unfavorable foreign currency rates all contributed to a 4% drop in first-quarter sales.
First-quarter revenues totaled $3.6 billion and took a hit of about $60 million from the loss of Lowe’s business.
PPG expects a similar hit in the second quarter, which should be the last quarter to reflect an impact.
For consumers, there has been “confusion in the market” about where to find PPG’s Olympic brand stains, Mr. McGarry told analysts on a conference call following the annual meeting.
Those products are now sold at Home Depot stores “and we’re very privileged to be a partner with Home Depot,” he said.
The negative impact of foreign currency rates totaled $160 million in the quarter and should be slightly less — $130 million to $150 million — in the second quarter, PPG said.
First-quarter net income fell nearly 5% to $312 million or $1.31 per share.
Adjusted net income, at $330 million, or $1.38 per share, beat analysts’ estimates of $1.21.
Mr. McGarry expects second-quarter earnings to improve to between $1.76 and $1.86 per share, including the negative foreign currency impact.
The company achieved higher operating margins in the first quarter with price increases of 2.6%, he said.
It will implement initiatives to offset continued inflation in the cost of raw materials, logistics and wages and realized savings of $20 million in the first quarter from restructuring programs already in place.
While sales of automotive coatings were hurt by declining demand worldwide, especially in China, sales volumes for aerospace, protective and marine coatings all rose by about 10%.
Besides the four companies it bought last year, PPG has closed on two acquisitions this year and said its pipeline remains active.
Shareholders Thursday approved two new directors: Cathy Smith, executive vice president and chief financial officer of Target; and Steven Davis, former chairman and chief executive of Bob Evans Farms.
The board now includes four women.