Michael H. McGarry
Chairman and Chief Executive Officer at PPG Industries
Thank you, John, and good morning, everyone. I would like to welcome you to our second quarter 2022 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 second quarter, we delivered record net sales of $4.7 billion and our adjusted earnings per diluted share from continuing operations were $1.81.
To quickly summarize the quarter, our sales performance was an all-time record, driven by continued realization of real-time price increases that are now fully offsetting total cost inflation. Total cost inflation includes generational high commodity cost inflation, energy, logistics, and other employee-related cost inflation. In addition to pricing, our top and bottom lines continue to benefit from recent strategic acquisitions, including our Traffic Solutions business, which delivered a record quarter.
We achieved strong sales results despite softening consumer demand in Europe, longer-than-anticipated COVID-related disruptions in China, and unfavorable currency translation. While we included the European demand realities and our financial guidance we issued in April, the impact of the extended China restrictions and the currency translation was negative by about $0.10 per share versus our original guidance. Our sales were aided by above-market volumes in several of our end-use markets, including our PPG-Comex business, which delivered another record quarter as concessionaires continue to add new locations.
In addition, our global automotive refinish, traffic solutions and U.S. packaging coatings businesses each set all-time quarterly sales record in the second quarter. This highlights one specific example of PPG technologically advanced products, that is our packaging business, where we have won positions on about 75% of the new metal can packaging lines in North America over the past two years.
Also, our aerospace business continues to benefit from year-over-year improvements in domestic travel in various countries, resulted in higher aftermarket demand, and we expect further aftermarket and OEM growth as the industry demand remains well-below pre-pandemic levels. Although still challenging, commodity supply disruptions continue to ease in the quarter and we expect further improvements as we progress through the second half of 2022. This includes much better raw material availability as inventories at most of our suppliers have vastly improved. We achieved adjusted earnings that were toward the upper end of our April financial guidance and would have been in line with the second quarter of 2021, if not for the negative impact of foreign currency translation. This reflects the benefit of our strong commercial discipline regarding pricing and continued focus on cost management.
Our earnings performance was aided by higher selling prices of about 12% year-over-year, marking the 21st consecutive quarter of higher selling prices. Our selling prices are now up over 15% on a two-year stacked basis, reflecting our continued actions to offset persistent cost inflation. We anticipate by the end of 2022, we will fully offset all cumulative total inflation from 2021 and 2022. More importantly, we are converting higher prices to improve margins.
During the quarter, our operating earnings improved each month. This strong progress is being reflected in the positive momentum of our operating margin recovery as we improved sequentially -- sequential quarterly margins by 200 basis points and anticipate further improvement in the third quarter. Also aiding our second quarter earnings performance was continued realization of acquisition related synergies and cost savings from previously announced programs, which together totaled about $30 million of incremental benefit.
During the second quarter, we also implemented cost mitigation initiatives in Europe, reflecting the slower demand in the region and have additional contingency plans ready in the event of a broader economic slowdown. The efforts around cost management resulted in a reduction of our overall -- of our selling and general finishing [Phonetic] cost by 100 basis points as a percent of sales compared to the prior year second quarter.
Our acquisitions are also performing well, including the traffic solutions business which achieved 15% sales growth in the second quarter. We remain excited about future growth opportunities for this business as in the next few years we anticipate increased infrastructure spending and expect further U.S. adoption of mandatory expansion of traffic marketing for safety purposes.
During the quarter, we continued to progress our launch of the expanded pro painter initiative with The Home Depot. Albiet, later than we wanted in the paint season and despite continuing raw material constraints, we were able to fully load PPG products at all U.S. locations with our full pro product assortment by the end of the quarter. We have already had some meaningful early wins of some large pro-contractors and our near-term target list includes more than 1,000 pro-contractors that have expressed interest in buying our products at the Home Depot. We're excited about teaming up with the Home Depot and collectively, we see opportunities for significant growth in the coming years.
In the second quarter, our net debt was consistent with the first quarter and our working capital was sequentially higher, mainly due to the higher dollar value of inventories, reflecting inflationary effects and higher receivables given our selling price increases. As the supply chain disruptions continue to improve in the coming quarters, we expect our working capital to return to more normal seasonal patterns and cash flow generation improve as we progress through the end of the year.
We repurchased $135 million of our stock at attractive prices during the quarter and continue to manage our acquisition pipeline. In addition, we have progressed our key capital expenditures during the second quarter focused on productivity and growth, and now expect total spending to be about $450 million for the full year. Consistent with our past practices, we'll deploy cash in the most accretive manner for our shareholders, including some debt reduction. In the second quarter, we further enhanced our company's corporate governance as we receive the necessary shareholder vote threshold for Board declassification and elimination of supermajority voting requirements. We had worked on soliciting our shareholders for years to pass these proxy votes, and we're pleased to see our efforts pay-off to further solidify our corporate governance.
In addition, we continue to advance our sustainability strategy and proudly announced PPG's commitment to setting near-term company-wide emission reductions, in-line with climate science through the science-based target initiative. We plan to communicate new 2030 goals that will define our decarbonization strategy over the coming months. Looking ahead, in most major regions and end-use markets, underlying demand for PPG products is expected to remain solid. We anticipate strong sequential growth in Asia due to higher industrial production compared to the second quarter that was heavily impacted by COVID restrictions. We're closely monitoring the current COVID situation in China. And at this time, we only expect minimal impact to our sales and operations from any further restrictions.
In Europe, we expect economic conditions to remain soft, including normal seasonal demand trends versus the second quarter. Also, positive demand trends are generally expected to continue in North America, aided by stronger sequential automotive OEM production, further aerospace recovery and continuation of recent trends in auto refinish sales as we work to fulfill strong back orders.
In the second half, year-over-year comparisons will be aided by the sharp declines we experienced last year during the height of the supply disruption that impacted several industries, particularly in the U.S. Outside of a few commodities, we expect supply chain conditions to continue to improve, including better raw material and transportation availability as our suppliers' production capabilities are returning to a more normal condition. Also, in the second half and specific to PPG, we expect several businesses, including automotive OEMs and Aerospace to deliver strong growth due to large supply deficits and low inventories in these end-use markets. Other PPG-specific positives for the second half are continuing acquisition synergy realization and additional cost savings from previously announced restructuring actions.
In the third quarter, our two-year stacked raw material inflation is expected to be about 40%, up a low single-digit percentage sequentially versus the second quarter. We'll continue to prioritize implementing further real-time selling price increases, and we expect a quicker offset versus historical lags similar to what we delivered in the second quarter. Importantly, we expect that our sequential quarterly momentum on operating margin improvement will continue in the third quarter as we work back towards our historical margins. And also, even with significant unfavorable currency impacts expected to continue, resulting in about a $0.10 EPS impact in the third quarter, we are forecasting our adjusted earnings to increase on a year-over-year basis.
While near-term challenges exist, I remain confident about the future earnings capabilities of PPG as the earnings catalyst that I referenced in the past remain fully intact, and we certainly see a path to return to prior peak operating margins with opportunities to exceed them. As a reminder, this includes continued recovery in the automotive refinish, OEM and aerospace coatings businesses. Continued sequential momentum of positive price versus cost as commodity raw material costs moderate, in the event of an economic downturn, they should moderate in a more rapid manner. A lower cost structure resulted in strong operating leverage on any sales volume growth, accretive earnings and further growth from our recent acquisitions.
In closing, as we look ahead, our team of 50,000 employees remain focused on serving our customers and supporting our stakeholders. Every day, I'm inspired by our teams around the world who are making it happen, are providing products that are helping to protect and beautify the world. Thank you for your continued confidence in PPG. This concludes our prepared remarks.
Now Lauren, would you please open the line for questions.