Record sales and earnings for protective and marine coatings helped drive PPG Industries to an overall 7% increase in third-quarter sales and record earnings in several segments, the company reported Thursday (Oct. 21).
Declines in the North American architectural coatings business offset solid growth in several of PPG’s top-performing businesses, including protective and marine coatings, automotive refinish, and aerospace, as well as growth in the Asia/Pacific region, the company said.
PPG’s third-quarter segment earnings grew by more than 35% compared with the same period last year, said chairman and CEO Charles E. Bunch. Overall sales volumes grew 6% over 2009, even with the decline in architectural coatings businesses serving the mature regions.
Overall third-quarter sales totaled $3.5 billion, an increase of 7% over the third quarter of 2009. Third-quarter reported net income was $262 million, or $1.58 per share. Third-quarter 2009 sales were $3.2 billion, with reported net income of $159 million, or 96 cents per share.
Adjusted net income for the quarter was $1.59 per share, compared with 97 cents per share in the same period for 2009. Both periods include an aftertax charge of 1 cent per share to reflect the net increase in the current value of the company’s obligation under its proposed asbestos settlement, which is pending court proceedings.
“Higher industrial activity resulted in sizable gains in our Industrial Coatings and Commodity Chemicals segments and in our fiberglass business, all of which are experiencing strong demand recovery from the recession,” Bunch said.
“Also, our Performance Coatings and Optical and Specialty Materials segments delivered third-quarter earnings records, once again growing by double-digit percentages.”
Earnings by the company’s Architectural Coatings – Europe, Middle East and Africa (EMEA) segment fell slightly, due primarily to negative currency conversion, Bunch said.
“Our record third-quarter earnings reflect the benefits of the strategic initiatives we’ve undertaken to broaden our geographic footprint, especially in high-growth emerging regions, and the diversity of the end-use markets we serve,” said Bunch.
“In addition, our lower overall cost structure has enabled us to leverage the ongoing, gradual global industrial recovery. We achieved these record results despite persistent raw-material cost inflation and anemic construction markets in the developed economies of the world.”
He added: “The shift of our portfolio to focus on coatings and optical products has significantly reduced our capital intensity. As a result, we have additional cash for earnings growth opportunities and to return to shareholders. Year-to-date, we have returned nearly 80% of our cash from operations to shareholders in the form of dividends and share repurchases.”
PPG raised its quarterly dividend to 55 cents per share on July 15, and it has spent about $275 million year-to-date to acquire 4.2 million shares of PPG stock at an average per-share price of approximately $65.
Seasonal Slowdown Expected
Looking forward, Bunch said, “While we anticipate continued gradual recovery in economic conditions, the fourth quarter is traditionally a slower sales quarter for most of our businesses due to seasonality.
“Our focus continues to be on operational excellence as we remain committed to cost management. We are also working diligently to offset higher raw-material costs.”
He said that PPG was implementing price increases for many of its products, including several in the Commodity Chemicals segment.
“We are planning to use our strong balance sheet over the next several quarters to further accelerate earnings growth through ‘bolt-on’ acquisitions and continued, selective share repurchases,” Bunch said. “We delivered record results despite the fact that the sales in our businesses have yet to fully recover. This, combined with our continued organic growth prospects and strong financial flexibility, give me optimism about our future earnings potential.”
The company’s 2010 tax rate was lowered in the third quarter to 27% based on the geographic mix of projected full-year results. When compared with the company’s previously estimated 2010 tax rate of 28%, the lower rate added 6 cents to third-quarter earnings per share, including a 4 cent catch-up from reducing the rate on earnings for the first six months of 2010.
Selected Segment Results
Performance Coatings segment sales in the third quarter of 2010 increased $28 million, or 3%, compared to last year’s third quarter as a result of higher selling prices. The protective and marine coatings business had a record quarter for sales and earnings. Segment earnings grew $19 million, or 12%, to a new quarterly record of $174 million as a result of the improved business mix and lower cost structure.
Industrial Coatings segment sales for the quarter rose $103 million, or 13%, due to volume growth of 14 percent, especially in the automotive coatings and industrial coatings businesses and in all regions. Segment earnings for the quarter were $86 million, an increase of $28 million from the prior year’s third quarter. Raw material inflation partially offset the benefit from improved volumes and reduced costs due to prior restructuring actions.
Sales for the Architectural Coatings – EMEA segment decreased $47 million, or 8%, due primarily to currency conversion. Segment earnings declined $9 million to $50 million, with about half of the decrease associated with currency conversion. The segment sales volume trend remained modestly negative at a level consistent with prior quarters this year.
The Optical and Specialty Materials segment delivered record third-quarter sales and earnings. Segment sales for the quarter increased $31 million, or 12%, as a result of double-digit percentage volume growth in both businesses. Segment earnings improved $15 million to $82 million as a result of the higher sales volumes, countered slightly by increased selling and advertising costs to support the sales growth.
Commodity Chemicals segment sales for the quarter increased $83 million, or 29%, due to higher volumes and prices. Segment earnings grew $41 million due to the improved pricing and volumes, partially offset by higher maintenance costs.
Glass segment sales increased $37 million, or 17%, compared with the prior year as a result of improved fiberglass volumes and price gains. Segment income was $32 million, an improvement of $38 million due to higher volumes, lower manufacturing costs, and higher equity earnings and royalty income.
Founded in 1883, Pittsburgh-based PPG serves customers in industrial, transportation, consumer products, and construction markets and aftermarkets. The company operates in more than 60 countries and recorded $12.2 billion in sales in 2009.