PPG, a Pittsburgh-based supplier of paints, coatings, optical products, and specialty materials, announced company approval of broad restructuring actions to reduce its global cost structure amid the COVID-19 pandemic.
The plan includes a voluntary separation program that was offered in the United States and Canada.
The company expects the planned actions will deliver $160 to $170 million in annual pre-tax cost savings by year-end 2021, with approximately $25 to $35 million of savings expected in 2020.
“Given the broad economic impact relating to the COVID-19 pandemic and the recovery timeline in a few end-use markets, we are taking decisive action to further adjust our cost base,” said Michael H. McGarry, PPG chairman and chief executive officer. “These measures will enable the company to come out of the crisis with lower structural costs. As a result of these actions, along with continued discretionary cost controls, we expect strong operating margin leverage as economic activity continues to improve. Despite efforts to reduce our total costs, we remain committed to continuing our investments in growth-related initiatives, including fully funding our research and development for products, services and digital capabilities that will drive long-term growth.”
PPG will record a restructuring charge of $160 to $180 million pretax, $125 to $140 million after-tax, or $0.52-$0.58 cents per diluted share, in the second quarter 2020, which is nearly all related to employee severance. The company will also incur other associated restructuring-related costs of approximately $10 million over future quarters. The total cash outlay, which includes capital expenditures to relocate certain operational activities, to complete these actions is approximately $180 million, with about $110 million expected in 2020 and the remainder in 2021.
Aside from business demand affected by COVID-19, PPG said the aggregate impact and pace of recovery is in line with the company’s expectations noted during an earnings teleconference on April 28. This includes strong demand for architectural do-it-for-yourself coatings, aerospace applications for military programs, and packaging coatings, but which has been more than offset by soft demand for commercial aerospace, automotive original equipment manufacturer, automotive refinish, architectural do-it-for-me, and certain general industrial coatings end uses.
Company sales volumes were lower than April 2019 by roughly 35 percent, but saw continued improvement through May, with aggregate monthly sales down less than 30 percent versus 2019. Both volume results were slightly better than originally forecasted. These results include higher year-over-year volumes in China and sequential monthly improvement of net sales in both the United States and Europe. Further sequential improvement is expected in June reflecting higher run-rate demand levels exiting May and additional reopening of economic activity across the world.
PPG will provide more details on its restructuring plans during its second-quarter earnings update in July.