Shedding some businesses and adding others, the world’s largest paint and coatings company started 2014 with a bang, ringing up double-digit sales growth in the first quarter and its highest global volume growth in three years.
On Thursday (April 17), Pittsburgh-based PPG Industries reported record first-quarter 2014 net sales from continuing operations of $3.6 billion—up 17 percent over the prior-year period. First-quarter adjusted earnings per diluted share soared more than 40 percent year over year, with record earnings in each major region, the company said.
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PPG's architectural coatings segment showed modest growth, excluding the former AkzoNobel North American portfolio.
The report continued a hot streak for PPG, which in January reported a record fourth quarter and one of the most successful years in its history.
Growth in the first quarter was broad based across many businesses. The company's newly expanded architectural coatings portfolio, acquired a year ago from AkzoNobel, turned in modest growth, while automotive OEM and aerospace coatings outpaced their general markets in every region. Protective coatings turned in a solid performance, and even the long-struggling European market grew.
Marine and packaging coatings were about the only segments that showed weaknesses.
“We achieved year-over-year global volume growth of 5 percent, our highest level in three years,” said PPG chairman and CEO Charles E. Bunch.
PPG acquired Hi-Temp Coatings Technology Co. Inc. in the first quarter. The Massachusetts company is a global supplier of high-temperature and insulative coatings.
“Additionally, growth rates accelerated in each region versus recent quarters, including in Europe, where our volumes grew 5 percent as we benefited from the early stages of that region’s economic recovery."
Overall, PPG's first-quarter report noted:
- Net sales of $3.6 billion, up 17 percent over the same quarter of 2013;
- Record adjusted earnings per diluted share from continuing operations of $1.98, up more than 40 percent year over year;
- 5 percent increase in sales volume, more than double recent quarters;
- Record earnings in each major region, including 39 percent growth in Europe; and
- $3.0 billion in cash and short-term investments at quarter-end.
In addition, the company incurred one-time after-tax charges of $21 million (14 cents per diluted share) for legacy environmental remediation and pension plan settlement costs; and $5 million (3 cents per diluted share) for acquisition-related costs. The company also reported a one-time after-tax benefit of $10 million (7 cents per diluted share) for the retroactive impact of U.S. tax law changes enacted in early 2013.
PPG's first quarter also included divestment of its majority stake in the Transitions Optical joint venture and all of its sunlens business. The company also acquired Hi-Temp Coatings Technology during the quarter.
PPG reported these segment results.
This segment consists of protective and marine coatings; automotive refinish; and architectural coatings in the Americas, Asia-Pacific and EMEA markets.
Protective coatings grew, offsetting continuing weakness in the marine market.
Segment net sales for the quarter were $2.0 billion, up 27 percent from the prior-year quarter, PPG said. Segment earnings of $248 million were up 29 percent.
Acquired businesses increased sales by 23 percent year over year, and segment volume growth added 3 percent, with currency translation and price accounting for the remaining net sales change.
Automotive refinish and aerospace increased sales volumes in all major regions, reflecting continued global industry growth. Excluding the AkzoNobel portfolio, PPG said its architectural coatings net sales in North America "grew modestly" over the prior year, "as results were mixed by distribution channel and the region was impacted by inclement weather."
Architectural coatings – EMEA volumes increased by mid-single-digit percentages, for which PPG credited "partial regional demand recovery" and good weather in the region.
Volume growth in protective coatings, including acquisitions, offset weaker marine coatings sales, where demand "remained negative year over year but stable," PPG said.
The segment consists of automotive OEM, industrial coatings, packaging coatings, and specialty coatings and materials.
Automotive Refinish coatings drove another strong quarter for PPG.
Net sales for the quarter were $1.4 billion, increasing 7 percent over the prior-year period. All of the growth reflected increased volume, with all regions delivering increases, according to PPG. Total segment earnings for the quarter were $231 million, up 17 percent.
Automotive OEM coatings grew by more than 10 percent globally, with strong growth in each major region, outpacing a global industry growth rate of about 4 percent. The industrial coatings and specialty coatings and materials businesses "also delivered solid volume growth," led by gains in North America and the Asia Pacific region, PPG said.
Sales of packaging coatings declined, driven by lower European volume.
Net sales in this segment, which consists of fiber glass and flat glass, grew by 4 percent year over year, to $266 million for the quarter. Global fiber glass demand improved, while flat-glass volumes declined and prices rose.
Segment earnings dropped to $4 million from $5 million, "primarily due to scheduled maintenance and repair costs" and higher natural-gas costs, the company said.
Bunch credited the company's earnings growth to "improved demand stemming from the aggressive actions we have taken to significantly reduce our cost structure."
Sales of Performance Coatings, including the Ameron used on the Riddler's Revenge in Los Angeles, were up 27 percent year over year.
Acquisitions had helped the company achieve "targeted cost synergies," he said, adding: "Also for the quarter, we more than fully replaced the earnings from our recently divested businesses.”
Looking ahead, Bunch said the company's strong cash position would yield more acquistions and more share buybacks.
“We anticipate solid global growth to continue, but it will not be uniform across geographies or end-use markets," he said.
On the other hand, he added: "PPG remains well-positioned with a balanced coatings portfolio, both regionally and by end-use market, providing broad growth opportunities while minimizing the impact of any individual fluctuations."More information, including presentation-slide content and a web replay of the earnings conference call, are available at PPG's Investor Center.