US PPG cautious on near-term China outlook

Stefan Baumgarten


HOUSTON (ICIS)–PPG is cautious about the Q1 outlook for of its business in China because of the COVID-19 uncertainties there, the top executives of the US-based coatings company said on Friday.

China is an important market for PPG, where it has 19 manufacturing sites that were affected by the disruptive coronavirus-related shutdowns there last year.

PPG’s “base case” is that there will be, to some degree, a second wave of infections after Chinese New Year, CEO Tim Knavish told analysts during PPG’s Q4 earnings call.

As people travel to unite with family during the Chinese holiday, which begins on 22 January, “we do believe that there will be a short, but acute second wave” of infections, he said.

As such, PPG does not expect to see a significant recovery in China until Q2.

PPG expects the overall demand environment in Q1 to remain similar to Q4 2022, when sales were affected the Ukraine war, the pandemic-related disruptions in China, and lower demand for do-it-yourself (DIY) architectural coatings in most regions.

Going beyond Q1, Knavish noted a number of growth catalysts for PPG in 2023:

  • China’s re-opening and PPG’s strong position in the country;
  • Improvements in supply chains, which will moderate raw material costs and  should improve profitability beginning in Q2;
  • In Europe, coatings demand stabilisation, beginning in Q2;
  • In the US, recovery in the automotive and aerospace sectors.

The auto sector is recovering from “recession levels” seen in the past three years, Knavish said.

He also noted that PPG’s overall exposure to the currently weak US new home construction market is small, accounting for only about 1% of the company’s global revenues.

For Q1 2023, PPG’s guidance for adjusted earnings per share (EPS) is $1.10-$1.20. This compares with reported adjusted EPS of $1.22 in Q4 2022 and $1.37 in Q1 2022.

While economic conditions are challenging in the near-term, margin recovery is expected to continue in 2023, with higher year-on-year segment margins, the CEO said.

PPG aggregate selling price rose 11% last year, and the company plans additional prices increases in Q1.

The positive pricing momentum continues as PPG enters the new year, “and beyond that a lot depends on what happens in the inflationary environment”, he said.

Due to economic uncertainty related to the COVID-19 pandemic and geopolitical issues, the company is not providing full-year financial guidance at this time.

However, longer-term, PPG would achieve annual EPS of $9, Knavish said.

“We feel confident that the $9 [EPS] is a ‘when’, not ‘if'”, as PPG has much earnings power yet to be released, he said and pointed to the recovery in the auto market, opportunities from restructuring, as well as acquisition synergies, among other factors.

For comparison, PPG reported full-year adjusted EPS of $6.05 for 2022.

Tim Knavish has been named PPG president and chief executive officer (CEO), effective Jan. 1, 2023. Knavish will join the company’s Board of Directors, effective October 20, 2022. (Photo: Business Wire)Tim Knavish,  PPG’s CEO, president and chairman, who succeeded from Michael McGarry  on 1 January 2023 (photo source: PPG)


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