Cooling off after a record earnings year, PPG Industries’ sales remained static for the first quarter of 2013, with weak European markets taking the brunt of the blame.
The Industrial Coatings segment offered a rare bright spot in PPG's first-quarter report released Thursday (April 18), ringing up $1.2 billion in sales—a 10 percent increase over the first quarter of 2012. But Performance Coatings sales, which includes the Protective and Marine Coatings business, dipped 2 percent from the year-ago period.
Overall, PPG's first-quarter 2013 net sales remained flat at $3.3 billion, the same as the first quarter of 2012. Adjusted net income inched up to $235 million from $216 million in the year-ago period.
Photos: PPG Industries
Despite flat net sales for the first quarter, PPG's coatings earnings grew in each major region. For the second quarter, the company anticipates "positive momentum" in the United States and Asia.
'Notable Demand Divergence'
The world's No. 2 paint and coatings company saw a mixed bag in its quarterly sales around the world.
"We continued to experience notable demand divergence among the major regional economies, with activity generally strong in North America, broad growth improvement in Asia, and persistent weakness in Europe," PPG chairman and CEO Charles E. Bunch said in a press release.
"Looking to the second quarter, we anticipate positive momentum in the United States and Asia to continue, while conditions in Europe remain challenging with limited prospects for near-term improvement," Bunch said.
The company expects earnings growth to be based on geographic and end-use diversity and additional cost improvements from its restructuring programs begun in 2008 and 2009. The first quarter of 2013 produced $30 million in restructuring savings, PPG said.
The company also repaid about $600 million of term debt.
Industrial Coatings Growth
First-quarter sales in the Industrial Coatings segment were $1.2 billion, up 10 percent or $107 million, over the same period of last year.
Industrial coatings varied by region and end-use market. The segment saw growth in Asia Pacific, consistent North American results, and broad declines in many European markets.
Automotive OEM coatings volumes grew by 8 percent globally, achieving growth in all major regions. Packaging coatings "grew modestly," the company reported.
Overall, segment earnings for the quarter were up by 19 percent to $178 million. Gains from improved sales were coupled with lower operating costs.
"Despite these regional differences, our coatings earnings grew in each major region, aided principally by our proactive cost-management actions coupled with the continued strength of several end-use markets, including automotive OEM, aerospace and U.S. construction," said Bunch.
Performance Coatings' Earnings Up
In the Performance Coatings segment, sales for the first quarter were $1.1 billion, down 2 percent versus the previous year. Volumes declined by 5 percent and were partially offset by pricing and acquisitions held for less than one year.
Performance Coatings consists of the Protective and Marine, Aerospace, Automotive Refinish, and Architectural Coatings Americas and Asia/Pacific divisions.
Despite two fewer sales days in the quarter, U.S. Architectural Coatings sales grew. However, like other coatings companies, PPG reported lower demand in marine new-build activity, offsetting those gains.
PPG's Industrial Coatings segment was one of few to report sales growth in Q1.
Growth in Aerospace benefited segment sales, and volumes declined in Automotive Refinish, primarily because of European market weakness, the company said.
Segment earnings improved by 8 percent to $172 million because of strong performance. Lower costs from restructuring actions and ongoing cost management "more than offset" the impact of lower sales volumes and inflation, according to PPG.
Architectural Volumes Down
Architectural Coatings-EMEA (Europe, Middle East and Africa) reported $454 million in sales for the quarter—a decline of $63 million, or 12 percent, compared to the prior-year period. PPG blamed the drop on volume declines caused by broad weakness in economies.
Additionally, fewer sales days and weather conditions caused reduced activity, PPG said.
Despite lower sales, the segment still saw earnings grow by $4 million over Q1 of 2012, reaching $20 million. The growth was aided by aggressive cost management and restructuring cost benefits, the company said.
PPG acquired AkzoNobel's North American architectural coatings unit April 1, more than doubling its business with the construction and maintenance markets, said CEO and chairman Charles Bunch.
Optical and Specialty Materials first-quarter sales were $314 million, down $20 million. Segment earnings were down 9 percent, to $99 million.
Glass segment sales matched the prior year at $256 million. Segment earnings decreased by $3 million to $5 million.
Aggregate coatings segment earnings grew by 13 percent over last year, but weaker U.S. consumer demand drove down sales and earnings in the Optical and Specialty Materials segment.
Mergers and Acquisitions
The company reported $2.4 billion in cash and short-term investments as of March 31. PPG spent about $140 million on share repurchases, primarily in February and March after it separated its commodity chemicals business in January and merged the business with a subsidiary of Georgia Gulf Corp.
The combined company is now named Axiall Corporation.
PPG also reported net income of $2.2 billion from discontinued operations in the first quarter, primarily from the separation of the commodity chemicals business.
The quarter's dominant deal, however, was PPG's acquisition of AkzoNobel's North American decorative coatings business, which "more than doubles our business serving the construction and maintenance markets in the region," Bunch said.
PPG will report its billion-dollar acquisition of AkzoNobel's North American architectural coatings business in the second quarter. The deal includes Glidden, Flood, Liquid Nails, and other prominent brands.
"Since the acquisition announcement in December 2012, teams have been working diligently to ensure the integration is seamless for customers and successful in creating value for our shareholders," said Bunch.
PPG's payment of about $950 million on April 1 for the business will be reflected in second-quarter financial statements, the company said.
Last week, PPG announced that it had reached an agreement to acquire certain assets of Deft Inc., a privately owned specialty coatings manufacturer that primarily supplies structural primers and military topcoats to the North American aviaton industry, as well as smaller architectural and industrial coatings businesses.
Headquartered in Pittsburgh, PA, PPG Industries manufactures coatings and chemicals for industrial, transportation, consumer products, construction markets, and other industries.
The company was founded in 1883 and operates in nearly 70 countries.