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Floods Hamper PPG Production, Earnings

Thursday, December 8, 2011

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Catastrophic flooding in Thailand has temporarily shut down production of some PPG Industries products and will reduce the company’s fourth-quarter earnings, officials say.

The interruptions will probably cost the company 8 to 14 cents per share in the fourth quarter, PPG Chairman and CEO Charles E. Bunch said Tuesday (Dec. 6) at the company’s 2011 capital markets day in New York City. Carryover effect into 2012 earnings will be minimal, Bunch said.

 Catastrophic flooding in Bangkok, Thailand

 Navy Visual News Service

A U.S. Navy Sea Hawk helicopter surveys the flood damage around Bangkok in October.

Pittsburgh-based PPG announced Nov. 15 that it had declared a force majeure for certain optical products because of the flooding, which began in July and spread to 23,000 square miles—more than two-thirds of Thailand’s 78 provinces.

A force majeure is a common insurance contract clause that temporarily frees a party from fulfilling its obligations in case of natural disaster or other events beyond its control.

Operations Suspended Indefinitely

In Thailand, PPG has suspended production at its Solarlens facilities in Bang Pa-In and Lat Krabang, while curtailing production at its Transitions Optical facility in Chon Buri. The Transitions Optical plant has been affected primarily by customer cutbacks in flooded districts.

“The significant flooding has severely affected our ability to provide products to our customers,” said Richard C. Elias, PPG senior vice president, Optical and Specialty Materials. “This is due both to the direct impact on our facilities and certain disruptions in the optical supply chain.”

 Satellite image of Thailand flooding; water shows as dark blue

 NASA Earth Observatory

A Moderate Resolution Imaging Spectroradiometer satellite image taken in October shows the extent of flooding in Thailand, with water shown in dark blue.

Elias added: “We continue to monitor the situation, but unfortunately are unable to provide a timeframe of when we will be able to return to normal operations.”

Elias expressed the company’s condolences to victims of the flood, which has affected more than 12 million people and caused about $45 billion in damage. As of Dec. 3, some areas remained up to six feet underwater and many factory areas remained closed.

“We have numerous employees in the region, and are working diligently to ensure their safety and well-being,” Elias said. No PPG employees have been reported as injured, he added.

Other Operations

Meanwhile Tuesday, Bunch said that most PPG businesses were performing in line with normal, seasonal fourth-quarter trends.

One exception is the Commodity Chemicals segment, which could see a 20 percent to 40 percent decrease in fourth-quarter 2011 earnings, due in large part to “chlorine customer inventory management,” he said.

Otherwise, Bunch’s report was upbeat.

“In each of the past five quarters, PPG has achieved record earnings per share, averaging nearly 30 percent above prior quarterly records, despite elevated raw material inflation and sales volumes that remain below pre-recession 2008 levels,” he said.

“Our record performance reflects the value-added technologies we are providing to our customers globally, our aggressive cost management and strong operational execution, and our earnings-focused cash deployment.”

PPG’s sales in coatings and specialty products have more than doubled since 2001 and now account for more than 80 percent of total company revenues, Bunch said. Overall sales in emerging regions now account for about 26 percent of PPG’s portfolio.

   

Tagged categories: Business matters; Earnings reports; PPG

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