Paving the way to a good first-quarter report with bad news, PPG Industries announced Thursday (April 5) that it would lay off 2,000 employees, settle a $160 million environmental bill, and pony up a little more for some recent acquisitions.
As PPG’s chairman warned in January, continued shakiness in Eurozone economies and architectural coatings have left pockets of vulnerability in PPG’s otherwise-outstanding recent financial showing.
Indeed, despite the mild winter and quickening pulse in construction activity, overall demand for architectural coatings “remained well below historical levels,” chairman and CEO Charles E. Bunch said in a statement. Furthermore, he said, “demand in Europe was muted, and we expect economic recovery to occur slowly in that region.”
|PPG is a leading coatings supplier in France, with more than 26% market share and more than 2,000 employees.The company said layoffs would impact its European workforce most.|
Therefore, the company said, it would pursue layoffs, primarily in architectural coatings and in Europe, as well as other restructuring actions.
“These cost-reduction actions, while always difficult decisions, are needed to ensure that our cost structure is appropriate for business conditions and that all of our operations remain competitive globally,” Bunch said.
The restructuring actions will result in a total pretax charge of $208 million (about $164 million, or $1.06 per diluted share, after tax) in the first-quarter balance sheet when PPG reports those results on April 19.
The pre-tax charge includes about $160 million in cash costs and about $48 million related to the net write-off of some assets and other non-cash items. The company will take about 80 percent of that $160 million hit in 2012 and the rest in 2013.
The nonrecurring charges include laying off about 2,000 of its 38,000 global employees, an environmental settlement in New Jersey, and acquisition-related expenses.
Environmental, Acquisition Costs
The environmental charge primarily involves about $160 million pretax for remediation activities at PPG’s old plant and associated sites in Jersey City, NJ.
PPG has “refined” its estimate of that tab as it prepares to submit a final remediation work plan to the New Jersey Department of Environmental Protection, Bunch said.
|PPG expected to spend about $160 million in 2012 and 2013 on chromium waste remediation at its old sites in Jersey City, NJ.|
He added, “PPG has consistently stated that there were possible environmental remediation costs of $100 million to $200 million related to these sites in excess of the amounts previously reserved.”
PPG said it expected to spend about $100 million cash annually over the next several years on environmental remediation, including work at the New Jersey sites. In 2011, the company spent about $60 million cash on environmental remediation.
Finally, the first-quarter report will include an after-tax charge of $4 million, or 3 cents per diluted share, for additional costs related to the purchases of the European coatings company Dyrup A/S and Colpisa Colombiana de Pinturas, a Colombian automotive coatings company. Those deals closed in January.
In all, PPG expects first-quarter earnings per diluted share in the range of 2 to 7 cents. Excluding the nonrecurring charges, adjusted earnings per diluted share are expected to be between $1.75 and $1.80, compared with $1.40 in the first quarter of 2011, when the company had no nonrecurring charges.
On the other hand, the restructuring actions should save PPG about $140 million pretax annually, the company said. For 2012, the savings will amount to between $40 million and $50 million.
In fact, despite the one-time charges, PPG expects to report a first quarter that beats analysts’ expectations, with higher sales and lower natural gas costs than in the fourth quarter of 2011.
“Our expected first-quarter operating results provide further evidence of the continuing strength and consistent earnings growth potential of our business portfolio,” said Bunch. “During the quarter, we saw the overall pace of business activity improve compared with the fourth quarter 2011.”
Bunch said business conditions during the first quarter “were strong in North America and solid in Asia and other emerging regions.” He also cited year-over-year growth in the aerospace, optical, automotive OEM and industrial markets, as well as “early signs” of improvement in U.S. construction.
|PPG’s Birstall site in the UK houses Europe’s largest architectural coatings manufacturing plant and employs more than 1,000 people.|
PPG has restructured before, and Bunch signaled in January that more moves could be ahead. He said at the time that Europe would remain “the most challenging” region and that the company would “be very proactive in managing our businesses as we deal with these uncertain market conditions.”
Investors took PPG’s moves as a good sign. The company’s shares were up $4.10, or 4.4 percent, to $98.02 in morning trading. Early in the session, they hit an all-time high of $98.43.