Pittsburgh, PA-based architectural coatings giant PPG Industries Inc. reported record profits for its fourth quarter, as total coatings segment earnings grew by nearly 30 percent from the prior-year period.
The company posted a 5 percent increase in earnings and a 3.5 percent uptick in revenue for the fourth-quarter of 2012, despite moderate economic conditions and uneven regional results, according to PPG’s fourth-quarter earnings report announced Monday (Jan. 14).
PPG Industries Inc.
High single-digit percentage growth in U.S. architectural coatings helped drive sales.
“Our record fourth-quarter results capped off an exceptional year for the company, driven by excellent operating performance and several significant strategic actions that have accelerated the pace of our portfolio transformation,” said Charles E. Bunch, PPG chairman and CEO.
The world's No. 2 paint and coatings maker has also made headlines lately announcing plans to purchase AkzoNobel’s North American decorative paints business for $1.05 billion and split off its commodity chemicals business.
By the Numbers
For the fourth quarter of 2012 ended Dec. 31, PPG reported net sales of $3.65 billion, up from $3.52 billion reported for the same period last year. Net income for the quarter was $227 million (or $1.46 per diluted share), up from $216 million (or $1.39 per diluted share) in the same quarter of 2011, according to its earnings report.
Adjusted net income for the quarter, excluding nonrecurring charges, was $238 million, the company noted.
“During the quarter, as we did during the first nine months, we grew our sales and earnings despite moderate overall economic conditions that varied by region and end-use market, and continued negative impacts from currency translation,” added Bunch.
Chairman and CEO Charles E. Bunch said the company achieved new records in adjusted earnings per share records in each quarter of 2012.
For the fiscal year, the company reported a 2 percent increase in sales, to $15.2 billion, compared to 2011 sales. Net income for the year was $941 million (or $6.06 per diluted share), down from $1.1 billion reported in 2011. However, adjusted net income was $1.2 billion for the year.
“We achieved new adjusted-earnings-per-share records in each quarter and delivered higher full-year earnings in each major region, including Europe, reflecting our strong operating execution,” Bunch said.
Commodity Chemicals, Decorative Deals
Net income for the fourth quarter includes after-tax charges of $11 million (or 7 cents per diluted share) for acquisition-related costs and costs directly related to the separation of the commodity chemicals business and merger with a subsidiary of Atlanta-based Georgia Gulf Corp., PPG said.
The company anticipates additional acquisition- and separation-related costs in the first quarter of 2013. Both PPG's second quarter and third quarter include nonrecurring charges related to the commodity chemicals deal.
The $2.1 billion deal involves the separation and merger of Eagle Spinco Inc. (also known as "Splitco"), a PPG subsidiary that will own PPG's commodity chemicals business with a subsidiary of chemical maker Georgia Gulf Corp.
There were no nonrecurring charges in last year’s fourth quarter or full year 2011.
Coatings Segment Growth
Quarterly sales for Performance Coatings—comprised of Architectural Coatings (Americas and Asia Pacific), Protective and Marine, Aerospace and Automotive Refinish—were $1.2 billion, up 1 percent versus the prior year. Segment earnings were $177 million, an increase of 26 percent.
Sales benefited from high single-digit percentage growth in U.S. architectural coatings sales, modest “organic” sales gains in automotive refinishing, and continued strength in aerospace demand.
PPG’s Duranar coatings have been used on landmark architectural sites worldwide, including the pyramid structure at the Louvre, in France.
However, sales in the quarter were negatively impacted lower architectural coatings volumes in emerging regions and by further weakening in marine new-build activity, the company said.
In addition, PPG said it delivered lower costs through discretionary cost management and restructuring-related benefits, and continued slow cost inflation.
Industrial Coatings segment sales for the fourth quarter were $1.1 billion, a 9 percent increase over the year-ago period. Strong volume growth continued in North America and emerging regions, more than offsetting persistently weak European demand, the company reported.
Overall demand, however, was varied by end-use application, with, for example, weaker consumer electronics demand and higher automotive parts activity.
Segment earnings for the quarter were $144 million, an increase of $38 million. The earnings impact from the higher sales was coupled with lower operating costs, such as ongoing cost management and restructuring-related savings.
Torrid automotive OEM coatings growth results continued to outpace industry growth, PPG said. In addition, the packaging coatings business also experienced volume globally.
Architectural Coatings—EMEA (Europe, Middle East and Africa) sales for the quarter were $465 million, a 4 percent increase from the prior year. Volumes declined 2 percent and currency translation was negative, however the declines were countered by increased sales from the Dyrup acquisition, which added about 4 percent to segment sales and improved pricing. PPG completed the Dyrup acquisition in January 2012.
Segment earnings for the quarter were $9 million, an increase of $1 million, as lower costs, including restructuring, were partly offset by the impact from lower sales volumes.
Optical and Specialty Materials fourth-quarter sales were $272 million, up 5 percent. Commodity Chemicals segment sales for the quarter were $405 million, up $7 million from the prior year. While, Glass segment sales were $241 million for the fourth quarter, down $15 million from the prior year.
Outlook: Growth Prospects, Acquisition Activity
Bunch forecasts that economic trends will remain varied by region in 2013, with a solid growth bias remaining in North America, improving growth prospects in Asia and subdued activity levels in Europe.
“We will continue to aggressively manage our businesses, including delivering incremental 2013 savings of between $70 million and $80 million from our previously announced restructuring program and targeted price increases in our coatings businesses, as we work to fully recapture inflation from the past two years,” he said.
In addition to closing the Georgia Gulf deal, expected this month, Bunch said, “We also have a variety of acquisition-related activities underway and anticipate closing the acquisition of the AkzoNobel North American architectural coatings business by mid-second quarter 2013."
Finally, the company remains focused on analyzing prudent cash-deployment opportunities for its current strong cash position and anticipated 2013 free cash generation, Bunch said.