PPG Annual Report and 10K 2019

24 2019 PPG ANNUAL REPORT AND 10-K Industrial Coatings $ Change % Change ($ in millions, except percentages) 2019 2018 2019 vs. 2018 2019 vs. 2018 Net sales $6,112 $6,287 ($175) (2.8)% Segment income $862 $818 $44 5.4% Industrial Coatings segment net sales decreased due to the following: Lower sales volumes (-6%) Unfavorable foreign currency translation (-3%) Partially offset by: Acquisition-related sales (+4%) Higher selling prices (+2%) For the full year 2019, PPG achieved higher selling prices in all major regions for nearly all businesses, reflecting the value of our products and services, offset by unfavorable foreign currency translation in all businesses. In the automotiveOEMcoatings business, net sales decreased by amid-single-digit percentage driven by lower sales volumes versus the prior year, consistent with the overall global industry automotive build rate. Partially offsetting the lower sales volumes were acquisition-related sales from the Hemmelrath acquisition and higher selling prices in all major regions. Industrial coatings net sales increased slightly versus the prior year, despite lower sales volumes due to weakening global manufacturing demand for certain end-use products. Lower sales volumes were more than offset by acquisition-related sales from the Whitford acquisition. Packaging coatings net sales decreased by a mid-single-digit percentage due to lower sales volumes versus the prior year. Year-over-year volumes were impacted by lower demand in packaged foods. However, sales volumes increased in Latin America due to customer conversions in the region during the year. Specialty coatings and materials net sales were lower by a low-single-digit percentage versus the prior year, despite sales volume growth in the U.S. and EMEA. Segment income increased $44 million year-over-year. Segment income benefited from improving selling prices, continued benefits from the Company’s ongoing restructuring programs and acquisition-related income, which were partially offset by the earnings impact of lower sales volumes and other cost inflation. Unfavorable foreign currency translation decreased segment income by approximately $20 million, primarily related to the Chinese yuan, Mexican peso and the euro. Looking ahead Looking ahead, global industrial demand trends are expected to remain subdued through the first quarter of 2020, with inconsistencies by region. Significant public health issues could have an unfavorable impact in certain industries and regions. The company will continue to prioritize operating margin recovery, focusing on executing its cost savings program and implementing contingency actions where necessary. Acquisition-related sales are forecast to add about $60 million stemming from Whitford and Hemmelrath. Based on current exchange rates, foreign currency translation is not expected to have a material impact on segment sales or earnings. Review and Outlook During 2019, economic conditions were generally positive in all of our major geographic regions despite soft global manufacturing activity that weakened during the year and remained mixed by end-uses. PPG’s net sales excluding foreign currency translation impact grew approximately 1% versus the prior year. Acquisition-related sales from acquisitions completed in 2018 and 2019 contributed 2% to net sales growth year-over-year, net of dispositions. Foreign currency translation was unfavorable throughout the year and impacted net sales by about 3%. Raw material costs moderated during the year, but remain elevated after a multi-year inflationary period. Some other key costs continued to increase in 2019 such as employee wage and benefit costs. U.S. and Canada During 2019, the pace of economic growth moderated in the U.S. and Canada versus the prior year, led by weaker U.S. GDP growth. Automotive OEM industry builds were relatively flat compared to 2018. Demand in the residential and commercial construction markets was modestly higher in 2019 compared to 2018. New home starts advanced approximately 2% in 2019 versus approximately 4% in 2018. Residential remodeling was down 2% in 2019 versus 2018, while commercial construction was down approximately 4% compared to flat in 2018. Market demand for architectural paint continued to shift more to professional trade painters as continued lower U.S. unemployment resulted in consumers choosing professional painters