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PPG Hunkers Down, Hones Coating Focus

Wednesday, December 15, 2010

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A “leaner, stronger, more global” focus has made PPG Industries Asia’s second-largest coatings company and the only one in the $90 billion coatings industry with sizable positions in every major end-use market, the company says.

Charles E. Bunch

“During the recession, we hunkered down, took significant restructuring actions, focused on reducing costs and generating cash, and also selectively invested for growth,” chairman and CEO Charles E. Bunch said Tuesday (Dec. 14), on PPG’s 2010 Capital Markets Day. “We succeeded in each of these areas.”

Bunch said the company had sharpened its focus on coatings, specialty products and emerging regions.

“About 70% of PPG’s coatings sales are from special-purpose coatings, which typically require higher technical competency and stronger customer partnerships,” he said.

Bunch singled out PPG’s optical products, automotive refinish and aerospace businesses as earnings growth drivers and cited “excellent organic growth prospects” for most of the company’s businesses in 2011.

Asian Sales Skyrocket

PPG’s expanding presence in emerging regions and higher overall industrial activity also continue to produce gains, he added.

Sales in emerging regions have grown by more than $2.5 billion in the last decade and now account for more than 25% of company sales, Bunch said. Annual sales in Asia have more than tripled in five years, from $600 million in 2005 to more than $2 billion today.

“Asia is now the world’s largest coatings region, and we have become the second-largest coatings company there with a full complement of offerings and ample room to grow,” he said.

In October, PPG announced that it would acquire the Chinese packaging coatings company Bairun. “We intend to remain disciplined in our approach to bolt-on acquisitions and are currently reviewing a number of potential acquisitions primarily in emerging regions,” Bunch said.

In the West: Inflation, Lower Demand

Looking ahead, PPG anticipates continued sluggish demand in construction markets in developed regions, as well as inflationary pressures resulting from generally higher raw material costs for key coatings inputs. However, executives said, PPG expects to benefit once again from lower natural gas prices and pricing initiatives to offset inflating costs.

The company will “continue our strategy to grow and strengthen our coatings and specialty products businesses through innovation and expansion in emerging regions,” Bunch said. “We also intend to leverage our global capabilities and make selective investments.”

PPG’s Commodity Chemicals segment’s profitability will likely be higher in 2011 than in 2010, Bunch said. The company continues to benefit from a lower tax rate, which has declined due to the geographic mix of earnings.

Financial Performance

PPG currently has a cash balance of about $2 billion, including proceeds from a recent $1 billion debt issuance. PPG’s priorities for cash deployment are focused on debt repayment, growing earnings and returning cash to shareholders.

Year to date, PPG has returned nearly 80% of cash from operations to shareholders in the form of dividends or share repurchases. Share repurchases will likely be “a more consistent use of the company’s cash going forward,” PPG said.

In its most recent quarter, the company reported record adjusted earnings of $1.59 per share, despite overall volumes that were nearly 10 percent below pre-recession levels.

PPG has paid uninterrupted dividends since 1899 and has increased its annual dividend payment for 39 years.

“PPG today is well positioned to capitalize on the continued recovery in the global economy,” Bunch said. “Our efforts delivered resilient financial performance and superior returns to shareholders.”

Webcast Available

A replay of the meeting webcast is available through PPG’s online Investor Center using these dial-in numbers: (888) 286-8010 (U.S.) and (617) 801-6888 (International). The access code for replay is 41799132.

Pittsburgh-based PPG (www.ppg.com) operates in more than 60 countries. Sales in 2009 were $12.2 billion.

   

Tagged categories: Coatings manufacturers; Market; PPG

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