PPG Reports Record Earnings in Q2 2012; Announces 11% Growth Versus Q2 2011
- Jul 20, 2012
PITTSBURGH -- PPG Industries reported net sales for the second quarter 2012 of $4 billion. Net income for the quarter was $362 million, or $2.34 per diluted share, including nonrecurring charges. Adjusted net income for the quarter, excluding the nonrecurring charges, was $365 million, or $2.36 per diluted share. Second quarter 2011 net sales were $4 billion, and net income was $340 million, or $2.12 per diluted share.
Second quarter 2012 results include after-tax charges of $3 million, or 2 cents per diluted share, for costs related to the company's announced agreement to separate its commodity chemicals business and merge it with Georgia Gulf Corp. or its subsidiary. The company anticipates additional separation costs in the second half of 2012. There were no nonrecurring charges in the second quarter 2011.
"In the second quarter, PPG delivered the highest quarterly earnings per share in company history as a result of continued execution, strong cost discipline and effective cash deployment," said Charles E. Bunch, PPG Chairman and CEO. "These record earnings were achieved despite significantly weaker European and Latin American currency exchange rates and growth that varied by region and end-use market."
According to Bunch, the negative currency impacts reduced overall sales by 5 percent and resulted in a negative 10 cents per share earnings impact versus the second quarter 2011.
"Overall, our sales in local currencies grew in the quarter, led by continued strong organic growth in North America," Bunch said. "Business in emerging regions also expanded, but results were mixed by end-use market. Organic growth in North America and emerging regions was comparable to first quarter performance; however, these gains were partly offset by a further, fairly broad step-down in European demand. These regional variations were evident in nearly all our global businesses, which resulted in an overall flattening of our worldwide volume growth rate.
"Aerospace and automotive manufacturing remained our strongest end-use markets, delivering excellent growth, and recent acquisitions aided sales and earnings results," Bunch noted.
"Looking ahead, we expect European business conditions to remain challenging, and we will continue to aggressively implement our previously announced restructuring programs focused primarily in this region. Targeted savings from these programs are between $40 million and $50 million in the second half of the year. We expect growth in North America and Asia to continue but to remain inconsistent by end-use market. Also, we continued to be impacted by coatings input cost inflation, with inflation rates this quarter similar to the first quarter. We expect to offset the negative effects of this inflation in the second half of the year with selectively higher pricing and lower commodity input costs.
"Finally, during the quarter we did not repurchase any company stock due to negotiations related to the separation and merger of our commodity chemicals business, which was announced today," Bunch said. "We will not repurchase any company stock while the announced deal is pending, but we will continue to pursue acquisitions that fit our strict financial metrics as a primary means of deploying our strong cash position."
The company reported that cash and short-term investments totaled approximately $1.2 billion at the end of the second quarter 2012. Year-to-date cash from operations was approximately $430 million, an improvement of about $175 million versus the prior year.
Performance Coatings segment sales for the quarter were $1.2 billion, up 1 percent versus the prior year. The negative impact of foreign currency translation was offset by higher selling prices. The aerospace business delivered strong growth in all regions, and U.S. architectural coatings sales were seasonally stronger than the first quarter and improved by mid-single-digit percentages over a difficult prior-year comparison period that included channel stocking for the new OLYMPIC(R) ONE product. 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.
Industrial Coatings segment sales for the quarter were $1.1 billion, an increase of $24 million, or 2 percent, versus the prior year. Segment volumes grew by more than 20 percent in the United States, including strong automotive OEM (original equipment manufacturer) coatings business performance. Growth in emerging regions continued but was mixed by end-use market, including in Asia where strong automotive OEM coatings results outpaced lower demand in construction-related markets. European volumes declined by about 10 percent. Sales growth was tempered by the negative impact of foreign currency translation, which reduced sales by nearly $60 million. Selling prices improved in response to higher input cost inflation. Segment earnings for the quarter were $143 million, an increase of $28 million from the prior year. Earnings were aided by the higher volumes and continued cost discipline.
Architectural Coatings - EMEA (Europe, Middle East and Africa) segment sales for the quarter of $601 million decreased $10 million, or 2 percent, versus the prior year due to lower volumes partly offset by price. Currency translation negatively impacted sales by 10 percent but was offset by sales from the Dyrup acquisition completed in January 2012. Despite mid-single-digit segment volume declines, segment earnings grew by $14 million versus the prior year's second quarter to reach $64 million, aided by acquisition performance and continued cost-management actions. The prior year included higher costs relating to a large customer bankruptcy, and that year-over-year benefit was negated by the negative impact of foreign currency translation.
Optical and Specialty Materials second quarter 2012 segment sales of $314 million were down $12 million, or 4 percent, versus the prior year due to the negative impact of foreign currency translation. Segment volumes were flat and included negative impacts from weakened European market conditions and optical customer inventory management. Segment earnings grew $5 million year-over-year to $95 million, aided by cost management.
Commodity Chemicals segment sales for the quarter of $427 million were down $43 million, or 9 percent, versus the prior year. Selling prices were lower year-over-year and modestly lower than the first quarter 2012. Chlorine demand weakened during the quarter, and volumes were also slightly lower year-over-year. Lower natural gas input costs and cost management offset the sales declines. Segment earnings were $106 million, level with the second quarter 2011.
Glass segment sales were $273 million for the quarter, down $1 million from the prior year. Higher flat glass volumes were offset by lower pricing and the negative impact of foreign currency translation. Fiber glass pricing declined from prior-year levels, driven by reduced European and Asian demand. Segment earnings were $23 million, a decrease of $6 million from the prior-year quarter as a result of lower pricing and lower fiber glass equity earnings.
PPG Industries' vision is to continue to be the world's leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2011 were $14.9 billion.
Statements in this news release relating to matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 reflecting the company's current view with respect to future events or objectives and financial or operational performance or results. These matters involve risks and uncertainties as discussed in PPG Industries' periodic reports on Form 10-K and Form 10-Q, and its current reports on Form 8-K, filed with the Securities and Exchange Commission (SEC). Accordingly, many factors could cause actual results to differ materially from the company's forward-looking statements.
Among these factors are global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, the realization of anticipated cost savings from restructuring initiatives, difficulties in integrating acquired businesses and achieving expected synergies therefrom, the ability to penetrate existing, developing or emerging foreign and domestic markets, economic and political conditions in international markets, foreign exchange rates and fluctuations in such rates, fluctuations in tax rates, the impact of future legislation, the impact of environmental regulations, unexpected business disruptions and the unpredictability of possible future litigation, including litigation that could result if the asbestos settlement discussed in PPG's filings with the SEC does not become effective. However, it is not possible to predict or identify all such factors.
This news release also contains statements about PPG's agreement to separate its commodity chemicals business and merge it with Georgia Gulf Corporation or a subsidiary of Georgia Gulf (the "Transaction"). Many factors could cause actual results to differ materially from the company's forward-looking statements with respect to the Transaction, including the parties' ability to satisfy of the conditions of the Transaction; the parties' ability to complete the Transaction on anticipated terms and schedule, including the ability of Georgia Gulf to obtain shareholder approval and the ability of the parties to obtain regulatory approvals and the anticipated tax treatment of the Transaction and related transactions; risks relating to any unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses and future prospects; business and management strategies for the management, expansion and growth of Georgia Gulf's operations; Georgia Gulf's ability to integrate PPG's commodity chemicals business successfully after the closing of the Transaction and to achieve anticipated synergies; and the risk that disruptions from the Transaction will harm PPG's or Georgia Gulf's business.
Consequently, while the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on PPG's consolidated financial condition, results of operations or liquidity.
Forward-looking statements speak only as of the date of their initial issuance, and PPG does not undertake any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as otherwise required by applicable law.
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