PPG: Record Income in Q3
Protective and marine coatings sales helped improve the bottom line for PPG Industries Inc. during the company’s third quarter of 2015.
Combined with recent acquisitions and “aggressive” cost reductions, the segment was one component of the Pittsburgh-based company’s record quarter results, PPG reported Thursday (Oct. 15).
Net income reached $439 million in the company’s third quarter, up from $394 million last year, the Pittsburgh-based company reported Thursday (Oct. 15).
The company said revenue for the quarter fell 1.8 percent to $3.87 billion.
Sales jumped 6 percent in local currencies versus the prior year, the company noted. Unfavorable currency translation reduced year-over-year net sales by about 8 percent, or $310 million, PPG reported.
‘Strong Growth’; Market Trends
“We have continued to deliver strong year-over-year growth in adjusted earnings per share, with results up 14 percent,” said Michael H. McGarry, PPG president and CEO.
“Our third-quarter performance was achieved despite the impact of unfavorable foreign currency translation, which was more than offset by the continued benefit of our acquisitions, including consistently strong performance of Comex, ongoing and aggressive cost-management actions and continued cash deployment.”
McGarry said regionally, the company achieved higher sales volumes in Europe. Year-over-year sales volumes grew in Asia as well. Meanwhile, the CEO says U.S. and Canadian markets exhibited lower sales volumes due to customer inventory management.
South American demand also weakened in comparison to the previous quarter and year-over-year, McGarry added.
PPG released these segment results.
This segment comprises Aerospace, Architectural Coatings EMEA (Europe, Middle East and Africa), Architectural Coatings Americas and Asia/Pacific, Automotive Refinish, and Protective and Marine Coatings.
Segment net sales for the quarter were $2.24 billion, down less than 1 percent over 2014. Acquisition-related sales, including Comex and several smaller acquisitions, added about $210 million to net sales, or about 9 percent over the prior year quarter.
PPG completed its acquisition of Comex in November 2014. McGarry says the company looks forward to including the Comex figures in its organic-growth column following the acquisition anniversary.
Currency translation reduced sales about 8 percent.
Segment sales volumes dropped 3 percent, with “lower architectural coatings demand due to weaker Canadian economy and inventory management by most U.S. and Canadian national retailers as we approached the end of a modest architectural painting season,” McGarry commented.
Organic sales growth continued in Aerospace and Automotive Refinish coatings, aided by growing market demand and continued customer adoption of innovative PPG technologies.
Architectural Coatings – EMEA organic sales were flat versus the prior year.
Architectural Coatings – Americas and Asia Pacific sales volumes declined by a high-single-digit percentage, reflecting regional demand weakness in Canada and the transitory impact of inventory-management measures by most national retail customers and independent distributors in the U.S. and Canada.
Protective and Marine Coatings sales volumes improved slightly over the prior year, with protective coatings gains offset by weaker marine-related demand.
Segment earnings improved $34 million, or 10 percent, to $379 million, over the prior-year period, aided by acquisitions coupled with improved operating and cost performance.
Currency translation reduced segment income by about $25 million from the prior year. In local currencies, segment income grew 17 percent year-over-year.
This segment includes Automotive OEM (original equipment manufacturer) Coatings, Industrial Coatings and Packaging Coatings.
Segment net sales for the quarter were $1.35 billion, down 3 percent year-over-year.
Sales volumes grew by 2 percent from the same period a year ago. Acquisition-related sales for the quarter added about $50 million to segment sales but were more than offset by unfavorable foreign currency translation, which reduced net sales by 8 percent year-over-year.
The company’s Automotive OEM coatings business delivered higher sales volumes in North America, Europe and Asia, growing in aggregate by a mid-single-digit percentage year-over-year, which was consistent with the previous sequential quarter and exceeded the global quarterly industry growth rate of approximately 1 percent, PPG said.
Meanwhile, sales volumes dipped 2 percent for its Global Industrial Coatings business as “industrial demand remains tepid,” PPG reported.
Global Packaging Coatings volumes exceeded those for the prior year quarter by mid- to high-single-digit percentage due to the adoption of new PPG can coatings technologies, the company added.
Total segment income was up $1 million, to $241 million. The uptick was driven by “earnings impact from higher sales volumes and manufacturing cost improvements, partly offset by approximately $15 million in unfavorable foreign currency,” according to PPG’s report.
In local currencies, segment income grew 7 percent.
PPG’s protective and marine coatings segment supplied Amercoat to refurbish the “Tent of Tomorrow” at the New York State Pavilion, which was used during the 1964 World’s Fair.
In addition, the company’s Glass Segment posted net sales of $278 million for the third quarter, down $5 million from the previous year. Volumes in the glass segment improved by a low single-digit percentage year-over-year, driven by growing North American fiber glass demand that was offset by the absence of sales stemming from the divesture of a flat glass facility in 2014.
McGarry says the company expects a “resumption of volume growth in our fourth quarter supported by continued global economic expansion, the absence of customer destocking and the benefit of including Comex in our organic-growth figures following the acquisition’s anniversary.”
Last November, the coatings company purchased Consorcio Comex S.A. de C.V., an architectural coatings company headquartered in Mexico City, in a transaction valued at $2.3 billion.
This year, the company has completed six acquisitions, with an aggregate purchase price of more than $400 million.
“Additionally, we continue to have a variety of PPG-specific earnings drivers that are not directly tied to the pace of the economy. These include the benefits of our previously announced restructuring actions, the attainment of remaining synergies from the ongoing integration of our acquisitions, and the ongoing effects of our continued cash deployment.
“Also, as we have done at PPG for many years, we will continue to proactively manage our cost structure to meet current demand trends. Further, based on current foreign-exchange rates and our business seasonality, we expect the negative impact of foreign currency translation will begin to moderate somewhat in the fourth quarter,” McGarry said.