US PPG warns of more pressure from raw-material costs in Q3

Author: Al Greenwood

2021/07/19

HOUSTON (ICIS)--PPG expects its raw-material costs to continue increasing during the third quarter - by up to 20% year on year, the US-based paints and coatings producer said on Monday.

In its Performance Coatings segment, PPG expects to take a $50m hit in the third quarter because sales volumes should suffer from continued shortages in raw materials. It expects the segment's raw material costs to rise by the mid-teens year on year.

The business units within Performance Coatings include Aerospace Coatings; Architectural Coatings; Automotive Refinish Coatings; Protective and Marine Coatings; and Traffic Solutions

Performance Coatings has responded to the higher costs by raising selling prices. During the second quarter, these rose by more than 3% versus the first quarter. The segment should raise its selling prices at a faster rate during the third quarter.

For PPG's Industrial Coatings segment, second-quarter raw material costs rose by 20% year on year, the company said. During that same quarter, the segment took a $100m hit from supply-chain disruptions, mainly due to the chip shortages hitting the automobile industry.

During the second quarter, Industrial Coatings increased selling prices by 4% versus the first quarter.

Looking ahead to the third quarter, Industrial Coatings expects raw material costs to rise by another 20% year on year. The sales volume impact from customer supply disruptions  should reach $100m.

Quarter on quarter, the segment should increase Q3 selling prices at a faster rate than that during the second quarter.

The business units within the segment include Automotive Original Equipment Manufacturers (OEM) Coatings; Industrial Coatings; Packaging Coatings; and Specialty Coatings and Materials.

Q3, FULL-YEAR OUTLOOKS
For PPG as a whole, aggregate net sales for the third quarter should rise by 21-23% year on year, including recent acquisitions. Organic sales should rise by the lower single digits.

Sales volumes should rise by the low single digits year on year. Volumes are being limited by shortages in raw materials and automobile customers contending with shortages in semiconductor chips.

Adjusted earnings/share during the third quarter should be $1.90-1.95.

Year on year, raw material costs should rise by the high teens to 20%.

For all of 2021, PPG expects to report adjusted earnings/share of $7.40-7.60.

By the end of 2021, PPG expects increases in selling prices should fully offset the rise in raw materials, said Michael McGarry, CEO of PPG.

INFLATION CAUSED Q2 MISS
PPG's second quarter results fell below the guidance the company issued in April because of supply disruptions and continued increases in costs for raw materials and transportation, McGarry said.

In April, PPG expected second-quarter earnings/share would be $2.15-2.20. It expected raw material costs to rise by the high single digits year on year.

Instead, the company reported Q2 adjusted earnings/share of $1.94. Costs rose by the mid to high teens.

The company's stock fell by more than 6% in after-hours trading.

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