PPG Reports Record Q2, Restructuring
After opening 2013 on a flat note, the world’s No. 2 paint and coatings company scored a record second quarter and made a restructuring announcement.
PPG Industries reported second quarter net sales of $4.1 billion, a 16 percent jump from the prior-year period, according to a release posted Thursday (July 18). Reported net income for the quarter was $341 million, up from $297 million a year before.
The company also announced the approval of a restructuring plan associated with its recent $1.05 billion purchase of AkzoNobel's North American architectural coatings business.
“We achieved new sales and adjusted earnings records due to the continued strong performance of our coatings businesses, which in aggregate delivered 25 percent earnings growth in comparison to last year’s record level,” said Charles E. Bunch, PPG chairman and CEO.
AkzoNobel Deal Delivers
PPG's recent takeover of AkzoNobel's North American architectural coatings business delivered in the company’s second quarter, the company said.
“The acquired business had sales of about $475 million in the quarter and delivered a mid-single-digit percentage earnings return on sales, which was slightly ahead of our target,” Bunch noted.
PPG also announced the recent approval of a $102 million business restructuring program focused on achieving “cost synergies” associated with the AkzoNobel deal.
Though the integration is still in the early stages, Bunch said PPG expects to achieve the targeted $200 million of annual synergies over a three-year period.
"The record adjusted earnings were driven by our strong operating focus, including ongoing aggressive cost management, and the earnings benefit from cash deployed on recent coatings acquistions," said Charles E. Bunch, PPG chairman and CEO.
The program will also include actions for businesses dealing with challenging market conditions, most notably protective and marine coatings and certain European businesses, such as architectural coatings and fiber glass.
The restructuring charge will be included in PPG’s third quarter results and is comprised of cash charges totaling $97 million and non-cash charges of about $5 million, the company reported.
Second-quarter sales varied by region, Bunch said.
“North America continued to expand, aided by higher industrial and auto production combined with continued positive momentum in the construction markets.
“Asia also grew, led by higher local consumption in China, while the European region remained sluggish with economic activity generally declining,” he said.
The company’s sales volume results were also mixed, similar to the respective regional trends, but PPG delivered higher earnings in each major region.
“An important factor to our excellent overall coatings results was higher sales in businesses such as automotive OEM (original equipment manufacturer) coatings, automotive refinish and aerospace,” Bunch added.
“For our non-coatings segments, sales and earnings were up modestly in Optical and Specialty Materials versus record prior-year results, and Glass earnings declined as market conditions for both glass businesses remained challenging.”
Performance Coatings Surge
In the Performance Coatings segment, sales for the second quarter were $1.7 billion, soaring 36 percent, or $447 million, versus the prior year due principally to sales from acquired businesses.
PPG reported that North American architectural coatings sales, excluding acquisitions, were down low-single-digit percentages. Architectural coatings sales for Europe, Middle East and Africa were down 5 percent compared to the prior-year period.
Volumes declined 5 percent due in part to lower marine new-build industry demand in Asia impacting the protective and marine coatings business.
Aerospace and automotive refinish delivered mid- to high-single-digit percentage sales growth aided by solid global end-market trends, although results varied somewhat by region.
North American architectural coatings sales, excluding acquisitions, were down low-single-digit percentages. High-single-digit percentage growth in company-owned stores was offset by lower results due to previously disclosed changes in products sold at a national retail customer.
Segment earnings improved by 25 percent to $255 million due to strong operating performance, including lower costs from previous restructuring actions and ongoing cost management, combined with the addition of earnings from the acquired businesses, according to PPG.
Industrial Coatings Up
Second-quarter sales in the Industrial Coatings segment were $1.2 billion, up 13 percent over the same period of last year.
Headquartered in Pittsburgh, PA, PPG Industries manufactures coatings and chemicals for industrial, transportation, consumer products, construction markets, and other industries.
Higher volumes and acquisition-related gains contributed to the increase.
Segment earnings improved 34 percent to $191 million.
Automotive OEM coatings volumes grew 12 percent globally, with comparable growth rates in all major regions. Global industrial coatings volumes improved modestly, with demand varied by region and end-use market, including strong emerging-regions growth, solid North American improvement and weaker European performance.
Packaging coatings sales advanced slightly in all regions. Segment earnings for the quarter were $191 million, up 34 percent as a result of higher organic sales coupled with lower costs, including the benefits from PPG’s continued operating focus, and earnings from acquired businesses.
Architectural Revenue Takes Hit
Architectural Coatings—EMEA (Europe, Middle East and Africa) reported $571 million in sales for the quarter—a decline of $30 million, or 5 percent, versus the prior year.
PPG blamed the drop on volume declines and continued weakness in economies throughout the region.
However, earnings for the segment increased 8 percent, to $69 million, from the second-quarter a year ago.
Other Segments Mixed
Optical and Specialty Materials second-quarter sales were $326 million, up $12 million. Segment earnings were up 1 percent, to $96 million.
Glass segment sales were $269 million, down $4 million from the prior year period. Segment earnings decreased by $15 million to $8 million.