PPG delivers record second quarter results

Second quarter 2013 sales and adjusted earnings per diluted share establish new all-time records for any quarter; aggregate coatings segment earnings increase 25% with solid earnings growth in all major regions; North American architectural coatings acquisition performing ahead of expectations; board of directors approves USD 102 million restructuring programme, to be recorded in third quarter 2013 financial results, focused primarily on cost-synergy achievement for N.A. architectural coatings acquisition.

PPG Industries has reported record second quarter net sales in 2013 of USD 4.1 billion, up 16% versus the prior year. Second quarter 2013 reported net income from continuing operations was USD 341 million, or USD 2.35 per diluted share. Adjusted net income for the quarter was USD 356 million, or a record USD 2.45 per diluted share, excluding nonrecurring acquisition-related charges of 10 cents per diluted share. Second quarter 2012 reported net income and earnings per diluted share from continuing operations were USD 297 million and USD 1.92 respectively. There were no nonrecurring charges in the prior-year quarter.
“We achieved new sales and adjusted earnings records due to the continued strong performance of our coatings businesses, which in aggregate delivered 25% earnings growth in comparison to last year’s record level,” said Charles E. Bunch, PPG chairman and CEO. “The record adjusted earnings results were driven by our strong operating focus, including ongoing aggressive cost management, and the earnings benefit from cash deployed on recent coatings acquisitions.
“Overall economic conditions remained divergent by region,” Bunch said. “North America continued to expand, aided by higher industrial and auto production combined with continued positive momentum in the construction markets. Asia also grew, led by higher local consumption in China, while the European region remained sluggish with economic activity generally declining. Our sales volume results were also mixed, similar to the respective regional trends, but we delivered higher earnings in each major region.
“An important factor to our excellent overall coatings results was higher sales in businesses such as automotive OEM (original equipment manufacturer) coatings, automotive refinish and aerospace,” Bunch added. “For our non-coatings segments, sales and earnings were up modestly in Optical and Specialty Materials versus record prior-year results, and Glass earnings declined as market conditions for both glass businesses remained challenging.
“Importantly, we finalized our acquisition of the AkzoNobel North American architectural coatings business on 1 April, and we are very pleased with the results in the quarter,” Bunch said. “The acquired business had sales of about USD 475 million in the quarter and delivered a mid-single-digit percentage earnings return on sales, which was slightly ahead of our target. We are in the early stages of integration and still have a considerable amount of work to do, including executing our recently approved restructuring programme. We remain confident that we will deliver the targeted USD 200 million of annual synergies over a three-year period, as previously outlined.”
PPG also announced that its board of directors approved a USD 102 million business restructuring programme. The approved actions are focused on achieving cost synergies related to the recent North American architectural coatings acquisition, including actions in the acquired business as well as in PPG’s legacy architectural business. Additionally, smaller targeted actions were approved for businesses where market conditions remain very challenging, most notably protective and marine coatings and certain European businesses such as architectural coatings and fiber glass. The restructuring charge will be included in PPG’s third quarter 2013 financial results, and it is comprised of cash charges totalling approximately USD 97 million and non-cash charges of about USD 5 million. Related cash outlays of about USD 60 million are expected in 2013, with the remainder likely to occur in 2014.
Bunch concluded, “Looking to the third quarter, we remain optimistic regarding our year-over-year earnings growth momentum driven by many of the same factors that we experienced in the first half of the year, including our proactive cost management. Also, we are continuing to prudently analyze cash-deployment opportunities with a focus on driving earnings accretion.”
The company reported that cash and short-term investments totalled approximately USD 1.8 billion as of 30 June 2013, up from USD 1.2 billion at the end of the second quarter 2012. In addition, year-to-date cash from operations was about USD 500 million, about USD 80 million ahead of the prior-year cash from continuing operations.
Performance Coatings segment sales for the quarter were USD 1.7 billion, up 36%, or USD 447 million, versus the prior year due principally to sales from acquired businesses. Segment volumes declined 5%, primarily due to lower marine new-build industry demand in Asia impacting the protective and marine coatings business. Aerospace and automotive refinish delivered mid- to high-single-digit percentage sales growth aided by solid global end-market trends, although results varied somewhat by region. North American architectural coatings sales, excluding acquisitions, were down low-single-digit percentages. High-single-digit percentage growth in company-owned stores was offset by lower results due to previously disclosed changes in products sold at a national retail customer. Segment earnings improved by 25% to USD 255 million due to strong operating performance, including lower costs from previous restructuring actions and ongoing cost management, combined with the addition of earnings from the acquired businesses.
Industrial Coatings segment sales for the quarter were USD 1.2 billion, advancing 13%, or USD 142 million, versus the prior year due to higher volumes combined with acquisition-related gains. Automotive OEM coatings volumes grew 12% globally, with comparable growth rates in all major regions. Global industrial coatings volumes improved modestly, with demand varied by region and end-use market, including strong emerging-regions growth, solid North American improvement and weaker European performance. Packaging coatings sales advanced slightly in all regions. Segment earnings for the quarter were USD 191 million, up 34% as a result of higher organic sales coupled with lower costs, including the benefits from PPG’s continued operating focus, and earnings from acquired businesses.
Architectural Coatings – EMEA (Europe, Middle East and Africa) segment sales for the quarter were USD 571 million, a decline of USD 30 million, or 5%, versus the prior year due to volume declines. Demand fell due to continued weakness in economies throughout the region. Despite the negative sales impact, segment earnings of USD 69 million grew by USD 5 million versus the prior year, aided by aggressive discretionary cost-management actions and cost improvement stemming from prior restructuring actions.
Second quarter 2013 Optical and Specialty Materials segment sales were USD 326 million, up USD 12 million, or 4%, versus strong prior-year results led by single-digit percentage volume gains in both optical products and silicas. Segment earnings of USD 96 million were up 1% versus the record second quarter level established in the prior year.
Glass segment sales were USD 269 million for the quarter, down USD 4 million year over year. Volumes declined in both fiber glass and flat glass, and they were partly offset by higher flat glass pricing. Segment earnings were USD 8 million, a decrease of USD 15 million from the prior-year quarter. Earnings were impacted by the lower sales, reduced equity and international licensing earnings and the negative impact of inflation, including higher transportation and natural gas unit costs.