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PPG reports record fourth quarter, full year earnings per share

“PPG achieved record earnings per share each quarter this year by focusing on strong execution in its global businesses, aggressive cost management and amplified cash deployment,” said Charles E. Bunch, PPG chairman and CEO. “In so doing, we delivered the best full year earnings per share in PPG’s history.”

PPG Industries reported net sales for the fourth quarter 2011 of USD 3.5 billion, an increase of 4% versus the prior year’s fourth quarter. Net income for the quarter increased to USD 216 million, or USD 1.39 per diluted share. Fourth quarter 2010 net sales were USD 3.4 billion, and net income was USD 205 million, or USD 1.24 per diluted share.
PPG’s annual sales for 2011 were USD 14.9 billion, an increase of 11% versus 2010 sales of USD 13.4 billion. PPG’s full year 2011 net income was USD 1.1 billion, or USD 6.87 per diluted share, versus 2010 net income of USD 769 million, or USD 4.63 per diluted share. Full year 2010 adjusted net income was USD 854 million, or USD 5.14 per diluted share. The company’s full year tax rate on ongoing earnings was 25% in 2011 and 26% in 2010. “PPG achieved record earnings per share each quarter this year by focusing on strong execution in its global businesses, aggressive cost management and amplified cash deployment,” said Charles E. Bunch, PPG chairman and CEO. “In so doing, we delivered the best full year earnings per share in PPG’s history.”
“This strong performance was achieved despite moderating global growth rates during the fourth quarter,” Bunch said. “During the year, we experienced uneven economic conditions, persistent raw material inflation, and continued anaemic construction activity in developed regions. However, the geographic and end-use market diversity of our business portfolio continued to be an important benefit in 2011.”
For the fourth quarter, Bunch noted that volumes were flat with the prior-year period, as some customers curtailed inventory and remained cautious with their ordering patterns in light of economic uncertainty. This was most evident in Europe, where overall sales volumes fell by 1%, and in PPG’s Commodity Chemicals segment.
However, Bunch said that PPG experienced strengthening global demand during the fourth quarter in several end-use markets, including aerospace, automotive manufacturing and several general industrial markets. He added that this higher demand was supplemented by PPG market share gains.
“During the quarter, we continued to aggressively pursue price increases and made further progress in countering high raw material cost inflation. Although prices of many raw materials have stabilized, we plan to implement additional price increases in 2012 to offset the inflation we have already absorbed,” Bunch said.
“In 2011, we increased our cash deployment, focusing on earnings accretion and continuing our heritage of returning cash to shareholders,” he said. “We repurchased 2.7 million shares of stock in the fourth quarter and more than 10 million shares during the full year. Also, we again raised our dividend, marking 40 consecutive years of annual dividend increases.” PPG reported today that it returned USD 1.2 billion, or 85% of 2011 cash generated from operations, to shareholders in the form of dividends and share repurchases during the year. The company said it ended the year with approximately USD 1.5 billion in cash and short-term investments.
Looking ahead, Bunch said that he anticipates first quarter 2012 growth to remain uneven by region and varied by industry, similar to the fourth quarter 2011. “We expect the European region to remain the most challenging,” he said. “We expect moderate strengthening in the US economic recovery, supported by an enhanced global cost position in the industrial sector due to lower regional natural gas prices. In the aggregate, emerging-region growth rates are expected to remain high compared to developed regions but more moderate and erratic than they have been in the past.
“As a result, we will be very proactive in managing our businesses as we deal with these uncertain market conditions,” Bunch concluded. “We intend to continue to prudently deploy our strong cash position for earnings accretion and rewarding shareholders, and are targeting to end 2012 with a cash balance of less than USD 1 billion.”
Performance Coatings segment sales for the quarter were USD 1.1 billion, up USD 34 million versus the prior year. Higher selling prices were realized in each business, while segment volumes declined 2% versus last year. The aerospace business continued to deliver excellent growth. Automotive refinish volumes fell modestly due to customer inventory management and softer European economic conditions. US architectural coatings sales improved, including company-owned same-store sales gains of high-single-digit percentages, due to higher pricing, while volumes remained flat. Architectural coatings volumes in emerging regions declined by mid- to high-single-digit percentages, including lower demand in China, and marine volumes declined by mid-single-digit percentages due to reduced shipbuilding activity. Segment earnings were down USD 30 million from the prior year due primarily to the lower marine and architectural coatings results, including the lower activity levels, higher inflation levels versus pricing and higher costs. The cost increase included higher year-over-year marine customer claims expense and additional selling and marketing costs in architectural coatings.
Industrial Coatings segment sales rose USD 70 million over last year’s fourth quarter to USD 1 billion, a 7% increase. Volume grew 4% based on increased global automotive production and growth in several general industrial end-use markets coupled with PPG market share gains. Segment earnings for the quarter were USD 106 million, an increase of USD 27 million over the prior year’s fourth quarter, as volume and price gains combined with continued, strict cost management to offset persistent raw-material cost inflation.
Sales for the Architectural Coatings – EMEA (Europe, Middle East and Africa) segment for the quarter increased USD 23 million, or 5%, versus the prior year’s period to USD 449 million, including the negative effects of currency translation. Volumes were up by low-single-digit percentages on share gains despite lower retail and “do-it-yourself” (DIY) store sales. Fourth quarter segment earnings grew USD 6 million year-over-year to USD 8 million as a result of the improved volumes in what is seasonally a slow quarter for the business.
Optical and Specialty Materials segment sales were USD 259 million for the quarter, down USD 9 million, or 3%, compared to the prior year’s fourth quarter. Volumes were down due to lower optical products sales, including the negative impact from the catastrophic flooding in Thailand, which disrupted customers and supply chains.  The flooding also impacted production of PPG’s optical materials, resulting in a declaration of force majeure during the quarter. Silicas volumes improved modestly, based on continued end-use market strength. Segment earnings declined USD 4 million year-over-year to USD 53 million, due to the flooding impacts, net of insurance.
Commodity Chemicals segment sales were USD 398 million for the quarter, an increase of USD 22 million over the prior-year quarter. Pricing improved, but volumes were down notably due to significantly lower chlorine industry demand and customer inventory management actions. Quarterly earnings were USD 63 million, down USD 10 million from the fourth quarter 2010 as a result of lower volumes and related lower manufacturing capacity utilization.
Glass segment sales were USD 256 million for the quarter, down USD 2 million, or 1%, year-over-year. Fiber glass volumes declined from robust prior-year levels due to lower European demand. Segment earnings were USD 19 million, a decrease of USD 10 million from the prior-year quarter primarily because of the lower volumes, lower capacity utilization, and lower licensing and equity earnings, including weaker results from PPG’s joint venture serving the electronics industry.
As mentioned above, PPG’s full year ongoing tax rate was 25%. This reduction from the previously forecast full year rate of 26% and the impact of a favourable tax audit settlement contributed 19 cents to earnings per share in the quarter. This amount includes the impact of 9 cents per share from the catch-up adjustment related to lowering the tax rate for the first nine months of the year and the impact of 8 cents per share for the favourable tax audit settlement. The lower ongoing tax rate resulted from tax planning initiatives implemented late in the fourth quarter that are expected to recur in 2012. The prior year’s fourth quarter results also included favourable tax impacts totalling approximately 9 cents per share, including 1 cent per share related to a statutory tax rate change and 6 cents per share related to a catch-up adjustment from lowering the tax rate for the first nine months of 2010. PPG currently anticipates the 2012 tax rate on ongoing pre-tax earnings to be 25%.

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