PITTSBURGH - PPG Industries Inc. (NYSE:PPG) has agreed to sell its architectural coatings business in the United States and Canada to American Industrial Partners for $550 million. The deal, which includes adjustments for working capital and net debt, is expected to close between late 2024 and early 2025, pending customary closing conditions.
This decision follows PPG's announcement on February 26, 2024, that it was exploring strategic alternatives for this segment of its operations. Goldman Sachs & Co. LLC and Hogan Lovells U.S. LLP advised PPG on financial and legal matters, respectively.
In conjunction with the sale, PPG has initiated a cost reduction program aimed at achieving annualized pre-tax savings of around $175 million, with $60 million expected in 2025. The program, which anticipates a pre-tax charge of approximately $250 million in the fourth quarter of 2024, will result in the closure of various facilities and is estimated to affect about 1,800 positions, mainly in Europe and the U.S.
PPG Chairman and CEO Tim Knavish expressed confidence in the transaction with American Industrial Partners, citing the architectural coatings business's strong brand presence and innovation. He also emphasized the divestitures' role in refining PPG's portfolio to focus on areas with the greatest growth potential, without affecting ongoing investments or the company's focus on organic growth.
The architectural coatings business in the U.S. and Canada accounted for roughly $2 billion of PPG's 2023 net sales, with a low-single-digit EBITDA margin. Excluding this business, PPG's sales volume would have seen a cumulative increase of over 200 basis points on a 3-year pro forma basis, and its Performance Coatings segment would have experienced an approximate 300-basis point improvement in segment margins in 2023.
PPG's architectural coatings operations in other regions, including Latin America, Europe, and Asia Pacific, where the company holds significant market positions, will continue as core businesses within PPG's portfolio.
The transaction's facilities include manufacturing and distribution centers across the U.S. and Canada, as well as more than 15,000 points of sale, indicating the business's substantial reach in the market.
American Industrial Partners, the acquiring entity, is an industrials investor with about $16 billion in assets under management, known for investing in a variety of industrial sectors and working to build long-term value in its portfolio companies.
The information in this article is based on a press release statement from PPG Industries.
In other recent news, PPG Industries has been the subject of mixed financial outcomes. Seaport Global Securities maintained its Buy rating on PPG Industries, despite the company's sales and margins not meeting the firm's projections. The company's earnings per share (EPS) aligned with Seaport's recently lowered expectations, aided by lower-than-expected interest expenses and a reduced tax rate. However, PPG's organic sales remained flat year-over-year, missing Seaport's modest 1% growth prediction.
The company's Performance Coatings segment performed near expectations in terms of sales, while its Industrial Coatings segment reported weaker performance. PPG anticipates its 2024 EPS to be at the lower end of the previously provided range of $8.15 to $8.30, hinting at a weaker fourth-quarter EPS of $1.65, below the consensus estimate of $1.70.
In another development, PPG Industries reported mixed Q3 results, with earnings exceeding estimates but revenue falling short. The company's Performance Coatings segment saw a 1% year-over-year sales increase, while the Industrial Coatings segment experienced a 6% sales decline. Despite these recent developments, PPG Industries has maintained its full-year 2024 guidance and continues to repurchase its stock.
InvestingPro Insights
As PPG Industries Inc. (NYSE:PPG) moves forward with the sale of its architectural coatings business in the U.S. and Canada, investors may find additional context from InvestingPro's real-time data and tips valuable.
PPG's market capitalization stands at $30.43 billion, reflecting its significant presence in the coatings industry. The company's P/E ratio of 21.35 suggests that investors are willing to pay a premium for its earnings, possibly due to its strong market position and growth prospects in its remaining core businesses.
An InvestingPro Tip highlights that PPG has raised its dividend for 53 consecutive years, demonstrating a long-standing commitment to shareholder returns. This is particularly relevant in light of the company's strategic moves, as it suggests PPG may continue to prioritize dividends even as it reshapes its portfolio. The current dividend yield is 2.09%, which could be attractive to income-focused investors.
Another InvestingPro Tip notes that management has been aggressively buying back shares. This, combined with the divestiture and cost reduction program, indicates a focused approach to enhancing shareholder value and optimizing capital allocation.
PPG's revenue for the last twelve months as of Q2 2024 was $18.1 billion, with a gross profit margin of 42.45%. These figures provide context for the $2 billion in net sales attributed to the divested business, helping investors gauge the impact of the sale on PPG's overall financial picture.
For readers interested in a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into PPG's financial health and future prospects.
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