Record sales in industrial and performance coatings helped deliver a strong first quarter for PPG Industries, despite $266 million in one-time after-tax charges that took a bite out of earnings, the company reported Thursday (April 19).
Company directors also approved a quarterly dividend increase to 59 cents per share.
|PPG reported a 6 percent increase in net sales over the first quarter of 2011 and $266 million in one-time after-tax charges.|
PPG had warned two weeks ago that its first-quarter performance would be pinched by several significant items. Still, the company forecast numbers that would beat analysts’ expectations.
All of that came to pass Thursday, when the world’s No. 2 paint and coatings maker posted strong sales numbers in two of its largest segments, offset by the nonrecurring charges and continued weakness in architectural markets outside the U.S.
Sales Surge, Charges Chafe
The Pittsburgh-based company reported net first-quarter sales of $3.8 billion, a 6 percent increase over the first quarter of 2011.
Net income for the quarter was $13 million, or 8 cents per diluted share, including nonrecurring charges. The company had no similar charges in the first quarter of 2011. Excluding the charges, first-quarter adjusted net income was $279 million, or $1.81 per share.
First-quarter 2011 net sales were $3.5 billion, and net income was $228 million, or $1.40 per diluted share.
PPG also reported after-tax charges of $163 million ($1.06 per diluted share) for expenses related to 2,000 planned layoffs and other restructuring measures; $99 million (64 cents per diluted share) to settle an environmental remediation case related to an old plant in New Jersey; and $4 million (3 cents per share) for costs related to recent acquisitions.
PPG chairman and CEO Charles E. Bunch praised the company’s ability to deliver “consistently strong earnings over nearly two years” despite economic uncertainty and rising raw materials costs.
“PPG’s earnings growth momentum continued during the first quarter, and we achieved a seventh consecutive quarter of record earnings with adjusted earnings per share up about 30 percent versus last year,” said Bunch.
Strengthening demand in most U.S. end-use markets and growth in emerging regions offset continued weakness in European markets, Bunch said.
“In aggregate, our core coatings and Optical and Specialty Materials segments delivered nearly 25 percent year-over-year earnings growth,” Bunch said. Aerospace, automotive OEM coatings, industrial coatings, and optical products all turned in strong performances, as did the U.S. architectural coatings market.
Performance, Industrial Set Records
Sales of Performance Coatings, which includes protective and marine, reached a first-quarter record of $1.2 billion, up $98 million over the year-ago period, driven by both higher volume and selling prices. PPG’s largest segment saw earnings grow $21 million over the prior year to $160 million, due to higher sales.
Aerospace delivered mid-teen percentage sales growth that exceeded industry rates, and U.S. architectural coatings sales improved about 20 percent, while volumes in emerging regions declined. Automotive refinish and protective and marine coatings results were solid but with more modest sales growth, PPG said.
|PPG Performance Coatings, which includes protective and marine, set a first-quarter record.|
Sales in Industrial Coatings (industrial coatings, automotive OEM and packaging coating) also saw a first-quarter record of $1.1 billion, an increase of $51 million, or 5 percent, over 2011. Segment volumes grew by more than 10 percent in the United States, including a strong automotive OEM coatings showing that outpaced the industry.
Growth in emerging regions continued, but more slowly and less consistently than in recent quarters. European sales volumes declined by about 5 percent. Segment earnings for the quarter were $150 million, an increase of $34 million from 2011, boosted by higher volumes, a continued focus on manufacturing costs, and higher selling prices.
Other Segment Results
First-quarter sales in Architectural Coatings – EMEA (Europe, Middle East and Africa) totaled $517 million, a 10 percent increase over the year-ago period, due mainly to incremental sales from the Dyrup acquisition. Sales volume declined, but the segment still managed $16 million in earnings—a $4 million increase—due to “aggressive cost management,” PPG said.
Optical and Specialty Materials sales set a quarterly record, increasing by 8 percent to $334 million. Segment earnings grew by $19 million year-over-year to $109 million.
Commodity Chemicals segment sales were $419 million for the quarter, level with 2011. Sales volumes were down, but lower natural-gas costs offset some of that hit. Quarterly segment earnings were $100 million, up $3 million from the first quarter of 2011.
Glass segment sales dipped by 1 percent year-over-year, and fiber glass prices were driven down by declining demand in Europe and Asia. Segment earnings dropped $18 million, to $8 million.
Looking ahead, the company expects its usual bounce from the second quarter, with “year-over-year growth rates in the United States to be similar to the first quarter, coupled with lower regional natural gas input costs,” Bunch said.
Growth in emerging regions should pick up, driven by increased industrial activity in China, while demand in Europe will “remain muted,” he said.
Restructuring is now underway in Europe, Bunch said, which should save 20 to 25 cents per share in the second half of the year.