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PPG Rockets and Rolls in 3rd Quarter

Friday, October 18, 2013

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PPG Industries’ aerospace and automotive OEM coatings businesses took a bow Thursday (Oct. 17) as the company reported a 17 percent spike in net sales and record adjusted earnings in its third quarter.

Ending its first full quarter after the billion-dollar acquisition of AkzoNobel's North American architectural coatings business, the Pittsburgh-based paint and coatings multinational reported "record financial performance" in its third-quarter earnings report.

Despite the headline-grabbing architectural deal, however, PPG chairman and CEO Charles E. Bunch singled out aerospace and automotive OEM coatings as "PPG’s most consistent growth drivers."

Third-quarter 2013 highlights included:

  • Net sales of $4 billion, up 17 percent over the prior-year period;
  • Adjusted net income from continuing operations of $353 million;
  • Record adjusted earnings per diluted share from continuing operations of $2.44, up 31 percent over the prior year ($1.52 per diluted share, including previously announced restructuring charges and other nonrecurring items);
  • Cash and short-term investments totaling $2.2 billion at quarter end; and
  • Anticipated full-year share repurchases at the "high end" of the previously announced range.
PPG protective coatings
Photos: PPG Industries

PPG's Performance Coatings net sales were up 34 percent in the third quarter. The portfolio includes protective and marine coating brands such as Ameron, pictured on the Riddler's Revenge rollercoaster in Los Angeles.

Reported and adjusted net income figures include lower pension expenses following PPG's January split-off of its commodity chemicals business.

Market Improvement
 
Overall, year-over-year volume trends improved "in each major region" compared to previous quarters, including some "initial signs of stability" in the long-shaky European market, said Bunch.
 
“We continued our cost-reduction actions and benefited from these improving demand trends, which helped us deliver record third-quarter earnings in each major region," Bunch said.
 
Bunch reported "record financial performance in the third quarter as positive impacts from our cash deployment and our strong operating focus were coupled with a broader improvement in market conditions."
 
The company also reported year-to-date cash from continuing operations of about $1.3 billion, about 25 percent ahead of last year's total. Cash and short-term investments totaled about $2.2 billion as of Sept. 30, up from $2.0 billion at the end of the third quarter of 2012.
 
Trending Markets

Despite the massive expansion of PPG's architectural coatings business, Bunch called aerospace and automotive OEM coatings "PPG’s most consistent growth drivers," with "many other businesses contributing to the overall sales and earnings growth."
 
Performance from the former AkzoNobel architectural business "continued to improve" in the third quarter, "and we remained aggressive in capturing our targeted synergies,” he said.
 
PPG architectural coatings

Excluding the AkzoNobel acquisition and others, net sales in North American architectural coatings were up by mid-single-digit percentages, reflecting "consistently higher market demand," PPG said.

“Within the six months following the transaction closing, we already realized, on a run-rate basis, more than 50 percent of the targeted $200 million of acquisition synergies," Bunch added. "While there remains considerable work ahead, I am pleased with the team’s excellent progress to date.”
 
PPG released these segment results.
 
Performance Coatings
 
This segment comprises Aerospace, Architectural Coatings Americas and Asia/Pacific, Automotive Refinish, and Protective and Marine Coatings.

Segment net sales for the quarter were $1.6 billion—up 34 percent, or $409 million, over 2012, due primarily to the addition of sales from acquired businesses, PPG said.
 
Excluding acquisitions, however, segment volumes declined 2 percent, as the impact of lower Marine new-build industry demand in Asia offset growth in all other businesses. Currency translation reduced sales by 1 percent.
 
Aerospace net sales advanced more than 10 percent, due to strong end-use market demand and sales from acquired businesses. Automotive Refinish net sales also grew, aided by strong emerging-region volume growth that offset negative currency impacts and a modest volume decline in Europe.
 
PPG automotive refinish

Net sales of Automotive Refinish products increased, driven by volume growth in emerging regions that helped offset declines in Europe.

Excluding acquisitions, North American architectural coatings net sales were up by mid-single-digit percentages, reflecting "consistently higher market demand," PPG said. Segment earnings improved $49 million, or 24 percent, to $252 million as a result of the acquired businesses’ earnings and lower costs from business restructuring and ongoing cost management.

Industrial Coatings

The segment includes Automotive OEM Coatings, Industrial Coatings and Packaging Coatings.
 
Segment net sales for the quarter were $1.2 billion, an increase of about 10 percent over the prior-year period, due to higher volumes and modest acquisition-related gains. Volumes in Automotive OEM coatings grew by about 10 percent globally, with each major region delivering growth on a comparable scale.
 
Global Industrial Coatings business unit volumes improved by mid-single-digit percentages, and "volume trends improved in all regions in comparison with the first half of 2013," PPG reported.
 
Global Packaging Coatings volumes grew modestly. Segment earnings for the quarter were $181 million, up 18 percent as a result of higher volumes and continued cost management.
     
Architectural Coatings – EMEA
 
This segment produces residential and commercial paints for Europe, the Middle East and Africa.
 
Segment net sales for the quarter were $571 million, inching up 1 percent over the prior year as lower volumes offset favorable foreign currency translation. Third-quarter volume declined by 4 percent year over year—an improvement, nevertheless, over the 10 percent decline the segment reported in the first half of 2013.
 
Segment earnings of $73 million represented growth of $17 million, or 30 percent, versus the prior year, aided by "aggressive" cost-management actions and lower costs, including benefits from "prior restructuring actions," PPG said. Currency translation contributed $2 million to segment earnings.
     
In addition, Optical and Specialty Materials segment net sales were $313 million, up 11 percent, over the third quarter of 2012. Glass segment net sales were $278 million for the quarter, up $16 million year over year. Volumes grew modestly in both fiber glass and flat glass, reversing a negative trend from earlier in the year.
 
Tempered Outlook
 
Bunch's outlook was cautiously optimistic, warning investors that the normal fourth-quarter seasonal slowdown figures would be magnified by the enlarged architectural business.
 
Still, he added, “We expect to continue to benefit from the gradual growth in global demand trends."

Regarding regional trends, Bunch reported:
  • Continued growth in the United States "in a measured manner supported by increasing demand in many markets";
  • Continued, but inconsistent, growth in emerging regions, varying by end-use market and country; and
  • Stabilizing demand in Europe, where volumes are still about 20 percent below pre-recession levels.
Noting the company's "strong balance sheet and cash position," Bunch said, "We remain focused, yet disciplined, on timely cash deployment for earnings accretion."
 
The company bought back about $325 million of PPG stock in the first nine months of this year and is "increasing our targeted full-year share repurchase level toward the higher end of the previously communicated range of $500 million to $750 million, as we continue our heritage of returning cash to shareholders,” Bunch said.

   

Tagged categories: Acquisitions; Aerospace; AkzoNobel; Architectural coatings; Automotive coatings; Earnings reports; Marine Coatings; Market trends; OEM (Original Equipment Manufacturers); PPG

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