Michael H. McGarry
Chairman and Chief Executive Officer at PPG Industries
Thank you, John, and good morning, everyone. I would like to welcome everyone to our fourth quarter 2021 earnings call. I hope you and your loved ones are remaining safe and healthy. I will provide some comments to supplement the detailed financial results we released last evening.
For the fourth quarter, we achieved record net sales of about $4.2 billion, and our adjusted earnings per diluted share from continuing operations for $1.26. To quickly summarize the quarter, we had favorable sales versus our forecast, but incurred significant manufacturing challenges due to COVID related staffing shortages, intermittent customer order patterns and raw material supply challenges. Our adjusted earnings were aided by a lower-than-expected tax rate in the fourth quarter as we recognized more favorable discrete items. Excluding the favorable impact from the tax rate, our adjusted EPS was about 10% of the financial guidance we provided in October.
Our sales performance for the fourth quarter was solid, as we achieved higher sales than our guidance, primarily due to better than expected automotive OEM global production, higher selling price realization and strong above-market sales volume in several of our end use markets. Overall demand remains robust. Our PPG-Comex business delivered yet again another excellent quarter and finished with 10% organic sales growth for the full year of 2021. This business had record sales and earnings growth for 2021 and continue to expand its concessionaire network, and in January we will have 5,000 concessionaire locations in our network. We recently added our traffic solutions products to its portfolio.
The protective and marine business continued it's trend of strong topline results, this time led by improvements in the marine coatings, where industry builds are expected to grow for the next several years. We also continue to grow our share in automotive refinish, where our full suite of advantaged products and services difference PPG from our competition. And in automotive OEM, we were awarded new 2022 business based upon our expanded mobility product offering. And finally, we realized higher increased selling prices globally. Lastly, the recently acquired Tikkurila business delivered record sales and earnings for any fourth quarter despite the difficult operating environment.
As I mentioned, overall sales would have been better, but we experienced continuing supply chain disruptions and a significant increase in COVID cases that hampered our ability to fully and consistently operate and prevented from fully meeting our strong customer order books. Recently, some of our manufacturing facilities having had up to 40% of their workforce out. In several businesses, we continue to face certain raw material shortages with the biggest impacts in U.S. architectural coatings and traffic solutions.
Overall, our sales backlog grew, and in total was about a $150 million exiting the quarter, most notably in our aerospace and automotive refinish and general industrial businesses. Our segment earnings did not meet our expectations. While we benefited from higher sales and increased selling prices, it was not sufficient to offset significant inflation, supply disruptions and operational inefficiencies caused by the rapid increase in COVID cases within our employee base, and those that of our customers and suppliers. Raw material cost inflation was up approximately 30% compared to prior year and transportation cost spike due to shortages of available trucks and drivers. In addition, operating costs were progressively higher during the quarter due to manufacturing interruptions at both our facilities and our customers' operations stemming from COVID. These increased operating costs impacted the quarter by about $0.20 per share and COVID related absenteeism has continued in January. Once we see some normalization, we are confident that we will quickly be able to return our legacy of strong manufacturing performance.
We've been taking actions to further diversify our supplier base and increase our internal resin manufacturing capability. PPG has in-house large scale resin manufacturing in each major region and we are expanding our capability in 2022 to mitigate future risk. As one example, PPG-Comex sources a high percentage of its resins internally, which has resulted in minimal disruptions. In addition to the historically high level of commodity raw material prices, we're also experiencing rising costs in other areas such as labor and utilities.
We expect to continue to proactively work with our customers to implement additional selling price increases in the first quarter. In aggregate, our selling price realization in the fourth quarter was about 8%, with a higher price realization in our industrial reporting segment. Our price capture remains broad with good traction in all businesses and all regions, and the pace of price, price, excuse me, the pace of price capture is much faster than the pace of prior inflationary cycles.
Reflecting back to 2021, we achieved all-time record sales of $16.8 billion, led by strategic acquisitions and strong organic growth of 10% despite the various ongoing supply chain challenges we incurred. In addition, we delivered record EPS growth of more than 10%, even with raw material cost inflation of about 20% for the full year, the highest level of coatings industry inflation in recent memory. We once again lowered our SG&A as a percentage of sales, decreasing by about 200 basis point, aided by delivering a $135 million in restructuring savings in 2021.
We also advanced our digital capabilities in many businesses, most notably the architectural coatings business where sales transaction on a digital platform increased by 20% compared to 2020, as we see our customers digital patterns become more ingrained. In 2021, we had strong accretive cash deployment, including the funding of our acquisitions, share repurchases made in the fourth quarter, an increase in our quarterly dividend for the 15th [Phonetic] consecutive year. We are among a small number of companies that have achieved this milestone, along with even fewer companies paying a dividend for more than 120 [Phonetic] consecutive years.
Our working capital as a percent of sales remain at historically low levels and comparable to last year, even though we purchased more raw material than typical in the fourth quarter. Finally, we have lowered our net debt by about $350 million since funding Tikkurila in June, and exited 2021 with a strong balance sheet and optionality for future accretive cash deployment.
Throughout 2021, we took actions to bolster our ESG program. As an example, in the fourth quarter, we further strengthen our overall ESG corporate governance structure. We define accountability and oversight for all major elements of our ESG efforts under respective Board committees. We've also redefined and renamed our technology and environmental committee to the Sustainability and Innovation Committee, with a key focus on tracking our sustainability progress and defining climate related risks and opportunities. A slide reflecting the changes is included in our presentation materials.
Looking ahead, demand continues to be robust in most of our end use markets. Tightened supply and COVID related disruptions evidenced in the fourth quarter are expected to continue into the first quarter of 2022, impacting our ability to manufacture in delivered product. We expect economic activity to be soft in China during the first quarter as more severe operating restrictions have recently been imposed due to COVID and during the Winter Olympics. We anticipate more favorable economic conditions in the second quarter. We plan to implement further selling price increases in all our businesses as raw materials and other cost inflation remain at elevated levels and are increasing further in certain areas. We will continue to aggressively manage all aspects of our cost structure and managing to minimize the cost impact of the current supply challenge.
The first quarter EPS guidance that we provided has a wider range than normal. As is typical, the month of March will be the largest component to our quarterly sales. Our current visibility to the second half of the quarter is limited due to uncertainties around the supply chain disruptions and the various impacts of Omicron globally. While the current environment remains difficult to predict, I expect that as 2022 progresses, we will start to experience more economic reopenings and an easing of supply chain problems, general inventory rebuilding across many end use markets and a healthy consumer willingness trend.
I remain very optimistic about future earnings capability of our company and see many catalysts return to prior peak operating margins with opportunities to exceed them. This includes; first, continued recovery in the automotive refinish OEM and aerospace coatings businesses, which collectively account for about 40% of our pre-pandemic sales and where we have broad global businesses supported by advantaged technology. The volume for these businesses remain about 15% below pre-pandemic levels, and we are already experiencing improving order flow that it's being crimped by supply availability. Second, normalization of commodity raw material cost, which should moderate over time as supply dislocations improve. Third, higher operating leverage on sales volume supported by our lower cost structure. Fourth, year-over-year earnings growth in 2022 and 2023 due to further synergy capture from our recent acquisitions, including a 15% increase to our original synergy target. And finally, above market organic growth, driven by our advantaged and leading brands technology and services.
An example of the key organic growth opportunity is the recent announcement on our expanded relationship with The Home Depot and HD Supply, with the launch of PRO paint assortment at all U.S. locations. This initially strongly supports our asset-light strategy by adding more than 2,000 distribution locations, together with the Home Depot, we are positioned to outgrow the Pro market in the U.S. Considering all of these catalysts, I believe we have a path to at least $9 of EPS in 2023.
In closing, I want to express my thanks and appreciation to our more than 50,000 employees around the world for their dedication in serving our customers and supporting the many communities where we operate. Every day their hard work and commitment to delivering our company's purpose to protect and beautify the world are reasons why we are well positioned today and in the future. Thank you for your continued confidence in PPG. This concludes our prepared remarks, and now Rocco would you please open the line for questions.