PPG (Pittsburgh, Pennsylvania, USA) announced that it will initiate significant and broad restructuring actions to reduce its global cost structure. The global coatings manufacturer cited weakened economic conditions due to the novel coronavirus (COVID-19) pandemic as a key factor in its decision.
According to PPG, these restructuring actions will provide opportunities to optimize supply chain and functional costs. All told, the company expects to save $160 to $170 million in annual pre-tax costs, along with an approximated $25 to $35 million of 2020 projected savings. PPG anticipates that the remainder of the annual cost savings will be realized by the end of 2021.
The restructuring plan includes a voluntary separation program offered in the U.S. and Canada, according to the company.
“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,” says 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,” adds McGarry.
Key details of the plan are as follows:
- A restructuring charge of $160-180 million pretax, $125-140 million after-tax, or $0.52-0.58 cents per diluted share, in the second quarter 2020;
- PPG will also incur other associated restructuring-related costs of approximately $10 million over future quarters; and
- A total cash outlay of approximately $180 million to complete these actions, with about $110 million expected in 2020 and the remainder in 2021.
PPG notes that the COVID-19 pandemic has impacted demand for its products. On the positive end, this includes strong demand for architectural do-it-for-yourself coatings, aerospace applications for military programs, and packaging coatings. On the negative end, there has been soft demand for commercial aerospace, automotive original equipment manufacturer automotive refinish, architectural do-it-for-me, and certain general industrial coatings end uses.
The company is expected to provide further details about its restructuring actions in a second quarter earnings update scheduled for July.
Source: PPG, www.ppg.com.