PPG Transformation Continues to Drive Growth Despite Economic Headwinds
PITTSBURGH, PA. October 16, 2008: PPG Industries today reported record sales for the third quarter of $4.2 billion, surpassing the prior year’s third quarter results by 37 percent. Third quarter reported net income was $117 million, or 70 cents per share. Adjusted net income excluding unusual items was $227 million, or $1.37 per share.
“Our financial performance this quarter demonstrates both the successful execution of our transformation strategy and the continued strength of our commodity chemicals business,” said Charles E. Bunch, PPG chairman and chief executive officer. “Over the past several years, we have become a more resilient company by expanding our geographic reach, entering new end-markets, and strengthening our ability to generate cash. In the quarter, our adjusted earnings per share were comparable with last year despite the negative impacts from two U.S. Gulf Coast hurricanes and significantly weaker automotive OEM production.
“Financial discipline and flexibility remain PPG hallmarks. We have further strengthened our balance sheet by already exceeding our full-year debt-reduction goals and increasing our cash on hand,” Bunch added. The company reported that year-to-date cash from operations has risen about 50 percent from last year, that net debt payments for the year totaled approximately $650 million, that cash on hand was about $500 million at quarter-end, and that U.S. commercial paper outstanding was about $175 million.
“We have taken proactive steps to continue to strengthen the company, including divesting the automotive glass business and initiating business restructuring. These steps will provide future financial benefits,” Bunch said. During the quarter, the company finalized the sale of an approximate 60-percent interest in its automotive glass and services business, and it announced business restructuring that will result in expected savings at an annual run rate of approximately $100 million by the end of 2009.
Reported third quarter 2008 net income includes aftertax charges of $110 million, or 67 cents per share, for business restructuring and $3 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 agreement reported in May 2002, which is pending court proceedings. Net income also includes an aftertax gain of $3 million, or 2 cents per share, on the divestiture of the automotive glass and services business.
PPG’s sales for the third quarter 2007 were $3.1 billion. Reported net income for the third quarter 2007 was $191 million, or $1.15 per share, and adjusted net income from continuing operations was $231 million, or $1.40 per share. Third quarter 2007 reported net income was comprised of net income from continuing operations of $213 million, or $1.29 per share, and a loss from discontinued operations from the former fine chemicals business, net of tax, of $22 million, or 14 cents per share. Reported net income from continuing operations included aftertax charges of $11 million, or 6 cents per share, for pension and other post-employment benefits (OPEB) curtailments related to the automotive glass and services business; $4 million, or 3 cents per share, for acquisition-related costs; and $3 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 agreement. Total adjusted net income, including discontinued operations, was $228 million, or $1.37 per share.
Performance Coatings segment sales in the third quarter 2008 increased $266 million, or 28 percent, versus the prior year’s quarter. Sales grew as a result of acquisitions, most notably the SigmaKalon protective and marine coatings business, higher pricing in all businesses and currency gains. Volumes were flat, as declines in the U.S. architectural coatings business were offset by growth in all other business units. Segment earnings improved by $8 million, or 6 percent, mostly due to the positive performance of acquisitions.
Industrial Coatings segment sales for the quarter increased $121 million, or 13 percent, due primarily to the acquisition of SigmaKalon’s industrial coatings business, stronger foreign currencies and improved selling prices. Volumes were lower, particularly sales into the automotive OEM industry. Segment earnings decreased by $41 million, or 46 percent, due to the negative effects of lower volumes and inflation.
The Architectural Coatings EMEA (Europe, Middle East and Africa) segment represents the largest business from the SigmaKalon acquisition. Segment sales for the quarter were $632 million, up a double-digit percentage over SigmaKalon’s corresponding sales in 2007. Segment earnings were $61 million and included a combined $30 million of ongoing quarterly depreciation expense and amortization related to acquired intangible assets.
Optical and Specialty Materials segment sales for the quarter increased $33 million, or 13 percent, as a result of improved volumes in the optical products business. Stronger foreign currencies and increased selling prices also aided sales growth. Segment earnings were up $6 million, or 11 percent, due to higher optical products volumes that were partially offset by higher marketing expenses related to volume growth.
Commodity Chemicals segment sales for the quarter increased $100 million, or 25 percent, due primarily to increased selling prices. Segment earnings were impacted negatively by the two U.S. Gulf Coast hurricanes but still improved by $27 million, or 30 percent, due to higher sales.
Glass segment sales, including the automotive glass and services business, were flat compared with the prior year. Higher selling prices were equally offset by lower volumes. Segment earnings decreased by $18 million, or 51 percent, due to lower volumes and higher inflation, which was only partially offset by higher selling prices and lower manufacturing costs.
The automotive glass and services business was divested Sept. 30, 2008. Third quarter 2008 results for that business alone were sales of $229 million and an aftertax loss of $3 million, or 2 cents per share. Third quarter 2007 results for automotive glass and services were sales of $249 million and aftertax earnings of $5 million, or 3 cents per share.