PPG reports record fourth quarter and full year results

* Fourth quarter 2012 sales of USD 3.6 billion
* Record fourth quarter adjusted earnings per share of USD 1.53, up 10% versus 2011
* Coatings earnings grew 30% in fourth quarter, 20% for full year
* Record full year adjusted earnings per share of USD 7.94; full year sales of USD 15.2 billion
* Improved full year earnings in each major global region
* Year-end cash and short-term investments of USD 2.4 billion

PPG Industries has reported fourth quarter 2012 net sales of USD 3.6 billion. Net income for the quarter was USD 227 million, or USD 1.46 per diluted share, including nonrecurring charges. Adjusted net income for the quarter, excluding the nonrecurring charges, was USD 238 million, or USD 1.53 per diluted share. Fourth quarter 2011 net sales were USD 3.5 billion, and net income was USD 216 million, or USD 1.39 per diluted share.
PPG’s annual sales for 2012 were USD 15.2 billion, an increase of 2% versus 2011 sales of USD 14.9 billion. The company’s full year 2012 net income was USD 941 million, or USD 6.06 per diluted share, versus 2011 net income of USD 1.1 billion, or USD 6.87 per diluted share. Full year 2012 adjusted net income was USD 1.2 billion, or USD 7.94 per diluted share. The company’s full year tax rate on ongoing earnings was 25% in 2012 and 2011.
Fourth quarter 2012 net income includes after-tax charges of USD 11 million, or 7 cents per diluted share, for acquisition-related costs and costs directly related to the separation of the commodity chemicals business and merger with a subsidiary of Georgia Gulf Corporation. The company anticipates additional acquisition- and separation-related costs in the first quarter 2013. There were no nonrecurring charges in last year’s fourth quarter or full year 2011. The 2011 results included a favourable catch-up impact from a fourth quarter adjustment of the full year 2011 tax rate from 26% to 25% and from a favourable tax audit settlement.
“Our record fourth quarter results capped off an exceptional year for the company, driven by excellent operating performance and several significant strategic actions that have accelerated the pace of our portfolio transformation,” said Charles E. Bunch, PPG chairman and CEO. “During the quarter, as we did during the first nine months, we grew our sales and earnings despite moderate overall economic conditions that varied by region and end-use market, and continued negative impacts from currency translation.
“Our coatings businesses continued to perform well, growing earnings by 30% versus last year’s fourth quarter, and the Optical and Specialty Materials segment delivered similar earnings growth. Commodity Chemicals segment earnings strengthened versus last year despite lower than anticipated sales and higher costs stemming from two unplanned production outages. Full year earnings for the Commodity Chemicals segment exceeded the prior-year record. Glass segment earnings were lower, as market conditions for fiberglass remained challenging.
“In summary, 2012 was an excellent year for PPG and its shareholders. We achieved new adjusted-earnings-per-share records in each quarter and delivered higher full year earnings in each major region, including Europe, reflecting our strong operating execution,” Bunch said. “We continued our history of strong cash generation, delivering record full year cash from operations and ending the year with USD 2.4 billion of cash and short-term investments. We also raised our annual dividend payout for the 41st consecutive year, a legacy we are proud to continue.”
Looking ahead, Bunch said he anticipates economic trends will remain varied by region in 2013, with a solid growth bias remaining in North America, improving growth prospects in Asia and subdued activity levels in Europe. “We will continue to aggressively manage our businesses, including delivering incremental 2013 savings of between USD 70 million and USD 80 million from our previously announced restructuring programme and targeted price increases in our coatings businesses, as we work to fully recapture inflation from the past two years,” he said.
“Strategically, we are continuing to complete the necessary actions to separate the commodity chemicals business, and we expect the transaction to close late this month. We also have a variety of acquisition-related activities underway and anticipate closing the acquisition of the AkzoNobel North American architectural coatings business by mid-second quarter 2013. Lastly, we continue to analyze prudent cash-deployment opportunities for our current strong cash position and anticipated 2013 free cash generation, with a primary focus on deploying that cash for profitable earnings-growth initiatives,” Bunch concluded.
The company reported that cash and short-term investments totalled approximately USD 2.4 billion at the end of 2012, up from USD 1.5 billion at the end of 2011. Full year cash from operations was about USD 1.8 billion, up 25% versus the previous year.
Performance Coatings segment sales for the quarter were USD 1.2 billion, up 1% versus the prior year. Segment sales benefited from continued strength in aerospace demand, high single-digit percentage growth in US architectural coatings sales and modest organic sales gains in automotive refinish. Sales in the quarter were negatively impacted by further weakening in marine new-build activity and lower architectural coatings volumes in emerging regions. Sales from acquisitions held for less than one year provided a modest benefit. Segment earnings grew 26% to USD 177 million. In addition to the earnings impact of the sales increase, the segment delivered lower costs through discretionary cost management and restructuring-related benefits, and while cost inflation continued, it was at lower rates than in prior periods of the year.
Industrial Coatings segment sales for the quarter were USD 1.1 billion, an increase of USD 95 million, or 9%, versus the prior year. Strong volume growth continued in North America and emerging regions, more than offsetting persistently weak European demand. Volume growth remained the strongest in automotive OEM (original-equipment manufacturer) coatings, with company results continuing to outpace industry growth. The packaging coatings business also experienced volume growth in all regions. Demand in the industrial coatings business varied by end-use application, including weaker consumer electronics demand partly offset by higher automotive parts activity. Segment earnings for the quarter were USD 144 million, an increase of USD 38 million, as the earnings impact from the higher sales was coupled with lower operating costs, including the benefits from ongoing cost management and restructuring-related savings.
Architectural Coatings – EMEA (Europe, Middle East and Africa) segment sales for the quarter were USD 465 million, an increase of USD 16 million, or 4%, versus the prior year. Sales volumes declined 2% and currency translation was negative, but these declines were countered by increased sales related to the Dyrup acquisition, which added about 4% to segment sales, and improved pricing. Segment earnings were USD 9 million, up USD 1 million, as lower costs, including restructuring cost benefits, were partly offset by the impact from lower sales volumes.
Optical and Specialty Materials fourth quarter 2012 segment sales were USD 272 million, up USD 13 million, or 5%, over the prior year. Segment volumes improved by 6% due to optical products growth, including the benefit of a customer inventory build related to the February 2013 commercial introduction of Generation VII TRANSITIONS® lenses. Prior-year sales volumes and earnings results were negatively impacted by flooding in Thailand that disrupted optical customers and supply chains. Segment earnings improved to USD 68 million, up USD 15 million, aided by higher year-over-year volumes and absence of the Thailand flood impacts.
Glass segment sales were USD 241 million for the quarter, down USD 15 million from the prior year. Higher flat glass sales were offset by lower fiberglass volumes and pricing. Segment earnings were USD 8 million, a decrease of USD 11 million from the prior-year quarter, as lower fiberglass sales and equity earnings offset strong manufacturing cost improvements.
Commodity Chemicals segment sales for the quarter were USD 405 million, up USD 7 million versus the prior year. Selling prices were modestly lower year-over-year stemming from lower chlorine pricing, including chlorine price decreases realized earlier this year, which was more than offset by higher caustic pricing and increased volume. Caustic pricing was higher both year-over-year and sequentially versus the third quarter 2012. Segment earnings in the quarter were negatively affected by USD 5 million, resulting from the impacts of lower sales, higher maintenance expenses and lower facility utilization stemming from two previously announced unplanned production outages. Despite these negative impacts, segment earnings improved to USD 72 million, up USD 9 million versus the fourth quarter 2011, due to lower manufacturing costs from higher operating rates driven by increased customer demand.
One of the previously announced unplanned outages is expected to continue to impact PPG’s results for Commodity Chemicals in January 2013, with an estimated negative earnings impact for the month of January in the USD 5 million to USD 10 million range based on reduced sales, negative sales mix and lower operating rates. Based on currently available information, production is anticipated to return to near-normal levels toward the end of January. PPG intends to report results for the Commodity Chemicals segment in discontinued operations in 2013, following the Commodity Chemicals business separation transaction that is currently anticipated to be completed at the end of January 2013.