PPG posts 42% sales gain in 2Q 2008

PPG Industries reported record sales for the 2Q 2008 of USD 4.5 billion on 17 July 2008, surpassing the prior year“s 2Q results by 42%. Net income for the 2Q was USD 250 million, or USD 1.51 per shar…

PPG Industries reported record sales for the 2Q 2008 of USD 4.5 billion on 17 July 2008, surpassing the prior year“s 2Q results by 42%. Net income for the 2Q was USD 250 million, or USD 1.51 per share. Adjusted net income, excluding the operating results of the automotive glass and services (AG&S) business, which is pending sale, as well as unusual and one-time items, was USD 269 million, exceeding the prior year“s quarter by 12%. Reported net income for the 2Q 2007 was USD 249 million, and adjusted net income was USD 242 million. “We delivered double-digit-percent growth in sales and adjusted earnings per share despite continued inflationary pressures and steep recessions in several US end-markets,” said Charles E. Bunch, PPG chairman and chief executive officer. “We are capitalizing on the strategic shift in our portfolio, the broadening of our geographic presence, and the increased end-market diversity of our businesses that we“ve achieved over the past four years.” Mr. Bunch highlighted several key elements of PPG“s financial performance in the quarter. “First, our core businesses – coatings and optical and specialty materials – grew combined segment earnings by more than 25%, aided by our acquisition of SigmaKalon and growth in emerging regions,” he said. “Second, our commodity chemicals business continued to deliver solid earnings. Last, we achieved one of the largest quarterly increases in our selling prices in the past several years”. “Our strong performance in today“s environment provides measurable evidence of our portfolio strength and our successful transformation into a global leader in coatings and specialty products”, Mr. Bunch said. “Looking ahead, we expect our growth to be sustained, due in part to these same factors”, the chairman said. He added that announced price increases in the commodity chemicals business are being implemented, along with price actions in other businesses, with the intention of offsetting further inflationary pressures. “We expect our future operating results to remain solid and to compare favorably within our industry groups”, Mr. Bunch concluded. PPG generated more than USD 300 million in cash from operations during the quarter, and on a year-to-date basis is approximately USD 125 million ahead of the previous year in cash generation. PPG announced on 8 July 2008 an agreement with an affiliate of funds managed by Kohlberg & Company, LLC, under which PPG will divest its AG&S business to a new company formed by Kohlberg. PPG will receive USD 330 million in gross cash proceeds and a minority interest of approximately 40% in the new company. In accordance with generally accepted accounting principles (GAAP), the results of the AG&S business were classified as discontinued operations beginning in September 2007. However, because PPG will hold an ownership interest in the newly-formed company, it will now include this business in continuing operations in its historical and current financial statements. Reported 2Q 2008 net income includes one-time, after-tax charges related to the pending sale of PPG“s AG&S business of USD 11 million to reflect a catch-up of depreciation expense, which was suspended when the business was previously classified as a discontinued operation, and USD 12 million relating to the impact of benefit changes including accelerated vesting negotiated as part of the sale. The company also recorded an aftertax charge of USD 2 million to reflect the net increase to current value of the company“s obligation under its proposed asbestos settlement agreement reported in May 2002, which is subject to pending court proceedings. Results also include aftertax earnings of USD 6 million relating to operating results of the AG&S business. Adjusted net income was USD 269 million, or USD 1.62 per share. PPG“s sales for the 2Q 2007 were USD 3.2 billion. Net income for the 2Q 2007 was comprised of net income from continuing operations of USD 250 million and a loss from discontinued operations from the former fine chemicals business, net of tax, of USD 1 million. Net income from continuing operations included an aftertax charge of USD 6 million to reflect the net increase in the value of the company“s obligation under its proposed asbestos settlement agreement. Results also included aftertax earnings of USD 13 million relating to the operating results of the AG&S business. Adjusted net income was USD 242 million, or USD 1.45 per share. Performance Coatings segment sales in the 2Q 2008 increased USD 295 million, or 30%, versus the prior year“s quarter, primarily as a result of the acquisitions of SigmaKalon“s protective and marine coatings business and of Barloworld. Industrial Coatings segment sales for the quarter increased USD 209 million, or 22%, as a result of the acquisition of SigmaKalon“s industrial coatings business, stronger foreign currencies and improved volumes, primarily in the automotive coatings business. The Architectural Coatings EMEA (Europe, Middle East and Africa) segment is a new reportable segment in 2008 and represents the largest business from the SigmaKalon acquisition. Segment sales for the quarter were USD 667 million, up a double-digit percentage in comparison to SigmaKalon“s corresponding sales in 2007. Segment earnings were USD 71 million. Optical and Specialty Materials segment sales for the quarter increased USD 32 million, or 12%, as a result of improved volumes, particularly in the optical products business. Stronger foreign currencies and increased selling prices also added to the growth. Segment earnings were up USD 5 million due to higher sales volumes and stronger foreign currencies, despite the impact of inflation and higher advertising expenses related in part to growth initiatives to support Transitions Optical“s next-generation lens product. Commodity Chemicals segment sales for the quarter increased USD 115 million, or 30%, due to higher sales volumes and increased selling prices. Reported Glass segment sales, including the AG&S business, were comparable to the prior year, as stronger foreign currencies and increased selling prices were almost entirely offset by lower sales volumes. Segment earnings decreased by USD 20 million due to lower volumes and higher inflation, partially offset by lower manufacturing costs.