Business News

PPG Reports Second Quarter 2009 Financial Results

Thursday 16. July 2009 - Sales and earnings decline versus last year as difficult economic conditions continue; Nearly $400 million in cash from operations, up 25 percent versus last year; Profitability improved substantially versus previous two quarters; Aggressive cost-management and restructuring actions contributing significantly to improving bottom-line performance

PPG Industries (NYSE:PPG) today reported sales for the second quarter of $3.1 billion, a decline of 30 percent versus the prior year’s second quarter including a 6 percent decline resulting from a business divestiture in 2008. The company reported net income of $146 million, or 89 cents per share. Adjusted net income was $148 million, or 91 cents per share. Second quarter 2008 sales were $4.5 billion and reported net income was $250 million, or $1.51 per share, and adjusted net income was $275 million, or $1.66 per share.

Sales in the quarter were down $1.4 billion, including a $253 million impact from the divestiture of a majority interest in the automotive glass and services (AG&S) business. Sales declined in all major regions of the world, with negative foreign currency translation a contributing factor in the decrease.

Second quarter 2009 net income includes an aftertax charge of $2 million, or 2 cents per share, to reflect the net increase in the current value of the company’s obligation under its proposed asbestos settlement, which is pending court proceedings. Reported second quarter 2008 net income included one-time, aftertax charges related to PPG’s AG&S business of $23 million, or 14 cents per share, and an aftertax charge of $2 million, or 1 cent per share, for the proposed asbestos settlement.

“While sales and earnings were down versus last year, our cash generation was up 25 percent and our earnings rose considerably in comparison to the previous two quarters,” said Charles E. Bunch, PPG chairman and chief executive officer. “Clearly, we are continuing to experience very challenging conditions in many of our end-use markets. However, we are encouraged as our total sales during the quarter remained fairly consistent month to month, and were also steady within each major region. This gives us a degree of confidence that most markets have stabilized, albeit at considerably lower levels than prior years.”

Bunch said that PPG’s coatings segments combined with its Optical and Specialty Materials segment accounted for 90 percent of total segment earnings and were considerably stronger than last quarter. “Specifically, our Architectural Coatings – EMEA and Performance Coatings segments delivered nearly flat year-over-year earnings in local currencies, which is a noteworthy achievement, especially when considering the volume headwinds related to the weakened economy,” he said.

Bunch attributed much of the earnings improvement and strong cash generation to the company’s strong execution and cost management across all of its businesses. “Our aggressive cost-cutting and restructuring actions are not only benefiting us today, but we are also well-positioned to capitalize as economic conditions and demand improve.

“Looking ahead to the third quarter, we expect overall market demand to improve, but only mildly,” Bunch said. He noted that the third quarter is traditionally a slower period due to seasonal trends in PPG’s businesses. “We expect sequential improvement in the U.S. automotive OEM market, but we expect the opposite for commodity chemicals.”

Bunch said that PPG ended the quarter with more than $1 billion of cash on hand and that the company intends to remain very prudent regarding the management of its cash position.

Performance Coatings segment sales in the second quarter 2009 decreased $203 million, or 16 percent, versus the prior year’s quarter. Currency conversion accounted for more than 40 percent of the sales decline, and the company also realized lower volumes in the automotive refinish business. Volumes remained down in the architectural coatings – Americas and Asia/Pacific business, but they improved versus first quarter 2009 year-over-year levels. The protective and marine coatings and aerospace businesses experienced mild volume declines. Segment earnings decreased $13 million, with currency accounting for $12 million of the decline. Lower volumes were offset by tighter cost controls and selling price gains.

Industrial Coatings segment sales for the quarter decreased $411 million, or 36 percent, due primarily to lower volumes in the automotive OEM coatings and industrial coatings businesses, reflecting the continued severe declines in global demand. Weaker foreign currencies also detracted from sales. Segment earnings for the quarter were $28 million, a decrease of $81 million from the prior year’s second quarter, due to significantly lower volumes and negative currency impacts. Substantially lower costs as a result of aggressive cost management, combined with improved pricing and lower input costs, partially offset the volume weakness. Earnings in the segment were $68 million higher than in the fourth quarter 2008, despite a slightly lower sales level.

Architectural Coatings – EMEA segment sales for the quarter decreased $140 million, or 21 percent, due in large part to weaker foreign currencies. Year-over-year volumes were down mid-single-digit percentages, but volume trends improved versus the first quarter 2009. Segment earnings decreased $16 million, with $12 million attributed to foreign currency conversion.

Optical and Specialty Materials segment sales for the quarter decreased $55 million, or 18 percent, as a result of lower sales volumes, including a 35 percent decline in silicas business sales. Segment earnings declined $15 million due largely to the lower volumes and weaker foreign currencies.

Commodity Chemicals segment sales for the quarter decreased $176 million, or 36 percent, due primarily to lower volumes and lower selling prices. The decline in demand was due to lower U.S. industrial activity. Segment earnings decreased $26 million due to lower sales volumes and lower manufacturing utilization as a result of the lower activity levels. The impact of lower input costs, primarily natural gas, was counteracted by the lower selling prices.

Glass segment sales declined $374 million compared with the prior year due largely to the AG&S business divestiture, which was completed in September 2008. Other factors contributing to the sales decline were lower volumes reflecting reduced construction and general industrial demand and weaker foreign currency. The segment loss was $7 million, a decline of $37 million due to the lower volumes and the absence of earnings from the divested AG&S business. Despite only a modest sales change versus the first quarter 2009, segment earnings improved $20 million, driven in part by improved manufacturing costs.

Last year’s second quarter results for the divested AG&S business were earnings of $10 million pretax, $6 million aftertax, or 4 cents per share.