PPG Industries has slam-dunked the highest quarterly earnings in its 129-year history, with growth in North America offsetting declining demand and currencies elsewhere, the company reported Thursday (July 19).
In the second quarter, PPG notched adjusted earnings per share of $2.36—an 11 percent gain over the year-ago period and the eighth straight quarter of record EPS.
Photos: PPG Industries
|PPG’s aerospace and protective coatings units delivered gains in the second quarter.|
At the same time, the world’s No. 2 paint and coatings company announced that it would sell off its $5 billion commodity chemicals business to focus more on coatings and specialty products.
$4B in Sales
Overall, the Pittsburgh-based company posted $4 billion in net sales for the quarter, ending June 30, with aerospace and automotive manufacturing remaining the strongest markets and protective and architectural segments showing gains.
Chairman and CEO Charles E. Bunch credited PPG’s performance to “continued execution, strong cost discipline and effective cash deployment.”
He added, “Aerospace and automotive manufacturing remained our strongest end-use markets, delivering excellent growth, and recent acquisitions aided sales and earnings results.”
Exchange Rates Bite
PPG’s performance defied “significantly weaker European and Latin American currency exchange rates” that eroded $180 million from its net sales and 10 cents from its EPS, Bunch noted. The company also saw uneven growth by region and end-use market, he said.
Business in emerging regions expanded, “but results were mixed by end-use market,” Bunch said. While North America and emerging markets continued their first-quarter growth, but European demand showed a “fairly broad step-down.”
That regional spottiness ended up flattening PPG’s worldwide volume growth overall, Bunch said.
PPG also recorded $3 million in after-tax charges in the quarter that nipped 2 cents from its per-share price.
Those costs were related to the newly announced commodity chemicals deal with Atlanta-based Georgia Gulf and will continue as that deal unfolds for the rest of the year, PPG said.
Performance Coatings Grow
PPG’s Performance Coatings business consists of protective and marine, architectural-Americas and Asia Pacific, aerospace and automotive refinish.
Segment sales for the second quarter were $1.2 billion, edging up 1 percent over 2011, as higher selling prices offset declining exchange rates.
|The quarter brought challenges to marine coatings, architectural coatings-EMEA and automotive refinish.|
Protective and marine coatings volumes were muted, with gains in protective coatings offset by lower marine demand. Automotive refinish volumes declined, due to lower European demand and customer destocking. Segment earnings for the quarter of $204 million were level with the prior-year period.
The aerospace business delivered strong growth in all regions, and U.S. architectural coatings sales were seasonally stronger than the first quarter, improving by mid-single-digit percentages.
Sales in architectural coatings – EMEA (Europe, Middle East and Africa), a separate segment, dipped by $10 million, or 2 percent, over the prior year. Sales from the Dyrup acquisition in January helped offset currency declines.
Sales in PPG’s Industrial Coatings segment—automotive OEM, industrial and packaging coatings—climbed 2 percent over the year-ago quarter, to $1.1 billion.
Segment volumes grew by more than 20 percent in the United States, including strong automotive OEM coatings business performance. Growth in Asian automotive OEM offset lower demand in construction-related markets, while European volumes dipped by about 10 percent. Unfavorable exchange rates cost the segment nearly $60 million. Segment earnings rose by $28 million from the prior year to $143 million.
Sales in Optical and Specialty Materials (optical products and silica) declined 4 percent to $314 million, as volumes remained flat. Volumes increased in the glass segment, but both segments registered sales declines, due largely to economic weakness in Europe and unfavorable exchange rates.
Commodity Chemicals: By the Numbers
PPG’s commodity chemicals business produces chlorine, caustic soda and related chemicals throughout the U.S., Canada and Taiwan for use in chemical manufacturing, pulp and paper production, water treatment, plastics production and agricultural products worldwide.
PPG said Thursday that it would separate the unit and merge it with Georgia Gulf in a $2.1 billion deal designed to create “a leading global chemicals and building products company with a broad portfolio of downstream products and approximately $5 billion in revenues.”
Georgia Gulf manufactures chlorovinyls and aromatics, as well as vinyl-based building and home improvement products marketed under the Royal Building Products and Exterior Portfolio brands.
The merged company will be led by Georgia Gulf President and CEO Paul Carrico and a senior management team and board of directors drawn from both companies. The merged company will have about 6,400 employees over more than 40 facilities, mainly in North America.
PPG’s Commodity Chemicals sales declined 9 percent in the second quarter from the prior year, to $427 million.
PPG has been grappling with the European economy for more than a year and announced layoffs and other restructuring in that region in April 2012.
Both the challenges and the restructuring will continue, Bunch said Thursday. PPG will “aggressively implement” restructuring, mainly in Europe, that should save the company between $40 million and $50 million in the second half of 2012, he said.
Meanwhile, growth should continue in North America and Asia, but “remain inconsistent by end-use market.”
Raw materials costs will continue to pinch for the rest of the year, to be offset by “selectively higher pricing,” Bunch said.
Bunch said PPG had not bought back any stock in the second quarter and would continue to hold off while the Georgia Gulf deal plays out, but would then use its “strong cash position” to “continue to pursue acquisitions.”