PPG has approved what it describes as “significant and broad restructuring” actions to reduce its global cost structure, with the aim of garnering US$170m in annual savings.
The company cited weakened global economic conditions stemming from the COVID-19 pandemic and related pace of recovery in a few end-use markets, along with further opportunities to optimise supply chain and functional costs.
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When completed, the company expects the planned actions will deliver US$160m to US$170m in annual pre-tax cost savings, with around $25m to $35m of savings projected in 2020. The remainder of the annual cost savings is anticipated to be substantially realised by year-end 2021.
The plan includes an unspecified voluntary separation programme, which was offered in the US and Canada.
“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 PPG chairman and CEO, Michael McGarry.
“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 US$160m to US$180m pre-tax, US$125m to US$140m after-tax, in the second quarter 2020, which is nearly all related to employee severance.
The company will also incur other associated restructuring-related costs of around US$10m during future quarters. The total cash outlay to complete these actions is around US$180m, with about US$110m expected in 2020 and the remainder in 2021.
The cash outlay includes capital expenditures to relocate certain operational activities.
Separately, while the COVID-19 pandemic continues to affect business demand, the aggregate impact and pace of recovery is consistent with the company’s expectations noted during its 28 April earnings teleconference.
This includes strong demand for architectural do-it-for-yourself coatings, aerospace applications for military programmes and packaging coatings, but which has been more than offset, the supplier maintains, by soft demand for commercial aerospace, automotive original equipment manufacturer (OEM), automotive refinish, architectural do-it-for-me and certain general industrial coatings end uses.
The company will provide further details during its second quarter earnings update in July.
