Michael H. McGarry
Chairman and Chief Executive Officer at PPG Industries
Thank you, John, and good morning, everyone. I'd like to welcome everyone to our first quarter 2022 earnings call. I hope you and your loved ones are remaining safe and healthy. To say that these are very difficult and challenging times for so many would be a massive understatement. Since the beginning of the war and Ukraine, we've been focused on protecting the health and safety of our employees and their families from Ukraine, as well as our employees in Russia.
PPG and the PPG Foundation has also committed more than $800,000 to humanitarian relief as well as longer-term recovery support. In addition, PPG employees have also been providing direct support to those a need, including taking refugee families into their homes. The war has also made it necessary to scale back and now wind down our operations in Russia. As a result, we recorded a pretax charge of $290 million for impairment of substantially all of our company assets related to our Russian operations. For context, net sales in Russia represented approximately 1% of total PPG net sales for the year ending December 31, 2021. We will continue to closely monitor developments in the region.
Before I provide the regular quarterly review of our results, I'd like to provide a concise summary of the key issues impacting our business in the quarter as we look ahead. During the first quarter, we had two major events, the Ukraine, Russia crisis and increased COVID-19 restrictions in China, which have created some new uncertainties about overall regional demand and possible global carry-on effects. You will see due to these increased uncertainties, we have widened our earnings guidance range we provided for the second quarter.
Notwithstanding these two major events or other longer, long -- longer standing global impacts which have affected our financial results for several quarters, and which are abating or ratably improving. Specifically, we continue to experience improvements in our supply chain and our raw material availability. Additionally, outside of China, COVID restrictions have continued to decrease in many parts of the world.
As a company, we have continued to improve our pricing realization in both pace and cadence. This has been necessary to battle the persistence and breadth of inflation. Our price capture this cycle is much faster and we are now pricing in the second quarter for second quarter inflation impacts. So we are basically pricing in real time. We continue to deliver good earnings leverage when we have improving volumes. While many of our businesses in the regions have not fully recovered from the pandemic. As a matter of fact, we are still a down about 5% in aggregate. However, when a business does deliver volume improvement, we are realizing good bottom line gains. This reflects the hard work from our teams that are managing our operating costs and SG&A. Finally, we had a very solid month of March from a financial returns perspective. We stated many times that March is the most important month in the first quarter given the seasonality of our businesses. Our month of March financial returns are the best returns since the second quarter of 2021.
I will now move to provide some comments to supplement the detailed financial results we released last evening. For the first quarter, we delivered record net sales of $4.3 billion, and our adjusted earnings per diluted share from continuing operations were $1.37. To quickly summarize the quarter, our sales performance was better than our January guidance despite unexpected impacts from the crisis in Europe, COVID related disruption in China, and continuing logistics bottlenecks. More than offsetting these unexpected macro issues was stronger-than-expected demand across many of our businesses as regional economies and end use markets continue to recover from the pandemic impacts.
Above market sales volumes were achieved in several of our end use markets, including our PPG-Comex business, which during the quarter opened their 5,000 concessionaire locations in Mexico. First quarter sales in Latin America were a record. In addition, our automotive refinish business performed well, with strong sales volumes in the US and in Europe. Also our aerospace business benefited from year-over-year initial improvements in the market, and we expect further industry demand growth as we are still well below pre-pandemic levels.
Our adjusted earnings were significantly above the upper end of our January financial guide as we delivered strong earnings leverage on the higher-than-expected sales volumes. This leverage was a result of improving manufacturing performance as COVID related absenteeism subsided significantly as we progressed through the quarter, and we experienced increasing raw material availability. In addition, our selling price increases increased 10% year-over-year, marking the 20th consecutive quarter of higher selling prices. Our selling prices were up over 12% on a two-year stacked basis versus the first quarter of 2020, reflecting our continued actions to offset generation high inflation.
Our recent acquisitions also performed well, including the realization of targeted synergies. The Tikkurila business delivered year-over-year sales growth of more than 10%, excluding our Russian operations. Our traffic solutions business also achieved greater than 10% sales growth and our first quarter sales were a record, and the business continue to have a large order backlog as we enter the second quarter.
During the quarter, we also launched a significant expanded PRO painter initiative with the Home Depot, and despite continuing raw material constraints restricting our ability to fully load inventory, we now have our full PRO paint assortment available in about 60% of their stores. We expect to have all the Home Depot stores loaded in the coming months. We are excited about the growth opportunities that this initiative provides and have already recognized some significant new professional painter business gains.
Our earnings and margins continue to be impacted by elevated levels of inflation and supply disruptions. In the first quarter, our selling prices did offset year-over-year raw material inflation, but did not offset inflation from other sources, including logistics, energy and labor, and we did not fully recover prior year inflation. Sequentially, versus the fourth quarter of 2021, our overall margins improved by more than 200 basis points. We are targeting continued quarterly sequential margin improvement in the second quarter as well despite further increases in raw material and logistics inflation.
We have continued to optimize our commercial processes in the last few years. And as mentioned, are now closer to real-time pricing relative to inflation. Due to higher crude oil and energy prices, we're implementing incremental selling price increases in the second quarter and expect that we will exit the second quarter offsetting all inflation categories on a run rate basis. This drives our expectations for operating margins to sequentially improve further as the year progresses.
In several businesses, we continue to face certain raw material shortages, resulting in our overall sales backlog growing to about $180 million exiting the quarter. The order backlog was the highest in our aerospace and automotive refinish businesses. Additionally, these are two of our many industries that we supply where inventory levels are extremely low, all the way to the end consumer. We have continued to control our controllable, and once again lowered our SG&A as the percentage of sales decreasing by about 40 basis points compared to the first quarter of 2021. This included delivery of an additional $50 million in cost savings from recent restructuring programs and acquisition synergies. This is also despite expanding our multi-year investment in our advanced digital capabilities, and we're experiencing growing digital adoption from our customers, most notably in the architectural coatings business.
In the first quarter, our net debt increased mainly due to the higher dollar value of inventory reflecting inflationary effects. The seasonal working capital increase in the quarter was consistent with pre-pandemic years. We expect our cash flow generation to match prior year end trends, which is to consume cash early in the year and generate strong cash flow as we progress through the end of the year. Strategically, on April 1 we completed the acquisition of Arsonsisi's powder coatings business, continuing our focus on growing our powder coatings manufacturing capabilities. In addition, we divested some architectural coatings businesses in Africa as we continue with our legacy evaluating all regional businesses and product lines to ensure that they continue to have strategic value and meet our financial hurdles.
In the first quarter, we continue to take additional measurable steps to further advance our ESG program by issuing our inaugural DENR [Phonetic] report. While I'm proud of what we have achieved, we know that there is more work to do and additional areas of opportunity to focus on. If you've not already done so, I would encourage you to read our report and learn more about what we have done in our aspirational goals for the future, which are outlined in our presentation materials. Looking ahead, while our underlying demand continues to be solid in most of our end use markets and regions, second quarter economic activity, in particular in Europe, has started to soften as consumers remain cautious based on the current geopolitical issues in the region. In addition, manufacturing supply chains have been recently impacted in China due to severe restrictions for rising COVID cases.
In the last few weeks, up to five of our smaller manufacturing sites have been mandated shut down due to restrictions, plus our principal protective and marine Coatings production facility. We are working in both of these regions to manage our operations and costs are reflective of these current macro challenges. We're also assessing the impacts, both positive and negative, these challenges may have on raw material supply and costs. As mentioned earlier, we expect further sequential inflationary pressures on raw materials, logistics and energy. Our two-year stack raw materials inflation expected to exceed 35%, but only up low-to-mid single digit sequentially versus the first quarter. We're implementing further selling price increases in all of our businesses and expect a quicker offset versus historical lags
Due to the heightened levels of uncertainty, our earnings guidance considers a wider range of outcomes for the second quarter. More generally, our guidance assumes that restrictions in China ease somewhat in May, and that geopolitical issues do not expand beyond the current Russia, Ukraine boundaries. While the current environment remains difficult to predict, I expect that as 2022 progresses, we will begin to experience an easing of supply chain disruptions, general inventory rebuilding across many end use markets and still a healthy consumer willing to spend, especially in North America.
The future of PPG earnings catalyst that I referenced on the January earnings call remain intact, and we certainly see a path to return to prior peak operating margins with opportunities to exceed them. This includes continued recovery in the automotive refinish, OEM, and aerospace coatings businesses. Normalization of commodity raw material costs which should moderate over time given supply dislocations are improving, and there is a softening in certain regional economies.
As demonstrated this past quarter and supported by our lower cost structure, strong operating leverage on any sales volumes growth, accretive earnings growth from our recent acquisitions from both their historical base earnings and further synergy capture, above market organic growth driven by our advantage and leading brands technologies and services.
In closing, as we look ahead, I remain confident about the company's future. I strongly believe in our team of 50,000 employees as we work to do better today than yesterday every day. The way our employees have dealt with the pandemic and are helping during the Ukraine humanitarian crisis and are navigating through a very challenging business environment, our prime example of how the team is making it happen.
Thank you for your continued confidence in PPG. This concludes our prepared remarks. And now Sam, would you please open the line for questions.