PITTSBURGH – PPG Industries reported third quarter 2015 net sales from continuing operations of $3.87 billion, versus the prior-year figure of $3.94 billion. Net sales in local currencies increased by 6 percent, or approximately $250 million, year-over-year, which included a 7 percent contribution from acquisition-related sales offset by lower sales volume of less than 1 percent. Unfavorable foreign currency translation reduced year-over-year net sales by about 8 percent, or about $310 million.
Third quarter 2015 reported net income from continuing operations was $433 million, or $1.59 per diluted share, and adjusted net income from continuing operations was $439 million, or $1.61 per diluted share, establishing a new third quarter record for the company. Net income from continuing operations for the third quarter 2015 includes after-tax charges for pension windups and transaction-related costs totaling $6 million, or 2 cents per diluted share.
Third quarter 2014 reported net income from continuing operations was $377 million, or $1.35 per diluted share, and adjusted net income from continuing operations was $394 million, or $1.41 per diluted share. Net income from continuing operations for the third quarter 2014 included after-tax asset-divestiture gains of $73 million, or 26 cents per diluted share, and after-tax charges for an increase to legacy environmental reserves of $86 million, or 30 cents per diluted share, for transaction-related costs of $2 million, or 1 cent per diluted share, and pension windups of $2 million, or 1 cent per diluted share.
“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 Chief Executive Officer. “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.
“Sales volumes declined by less than 1 percent year-over-year, reflecting overall moderation in global economic conditions during the quarter and transitory customer inventory management. Our Industrial Coatings segment sales volumes grew, supported by continued volume improvement in all major regions for automotive OEM coatings, partly offset by a slight decline in general industrial demand, similar to the prior sequential quarter. Our Performance Coatings segment sales volumes declined, with lower architectural coatings demand due to a weaker Canadian economy and inventory management by most U.S. and Canadian national retail customers as we approached the end of a modest architectural painting season,” McGarry commented.
“Regionally, we achieved higher sales volumes in Europe, with trends slightly ahead of the previous quarter as we continue to see broader, incremental improvement in that region. Year-over-year sales volumes grew in Asia as well, with softness and customer destocking early in the quarter followed by demand improvement later in the quarter. Sales volumes in the U.S. and Canadian markets were lower year-over-year, primarily due to customer inventory management. South American demand weakened in comparison to the previous quarter and year-over-year,” McGarry said.
“Looking ahead, we anticipate 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,” McGarry said. “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.
“Finally, we remain committed to earnings-accretive cash deployment. Year-to-date, we have completed six business acquisitions with an aggregate purchase price of more than $400 million and repurchased about $500 million in PPG stock. We had previously announced a cash-deployment target of $1.5 billion to $2.5 billion focused on acquisitions and share repurchases for the combined calendar years 2015 and 2016. We are now targeting at least $2.0 billion to $2.5 billion over that time period,” McGarry concluded.
At the end of the third quarter, PPG reported approximately $1.4 billion of cash and short-term investments, down from $3.0 billion in the prior-year quarter due to cash-deployment actions. During the quarter, the company repurchased about $150 million, or about 1.5 million shares, of PPG stock. Year-to-date, the company has repurchased about $500 million in PPG stock, in comparison with a 2014 year-to-date figure of $450 million. PPG has approximately $1.2 billion remaining of its current share-repurchase authorization, which was approved in 2014.
Performance Coatings segment net sales for the quarter were $2.24 billion, down less than 1 percent year-over-year. 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. Unfavorable foreign currency translation reduced net sales year-over-year by about $190 million, or about 8 percent, and segment sales volumes declined by 3 percent.
Industrial Coatings segment net sales for the quarter were $1.35 billion, down 3 percent year-over-year. Segment sales volumes grew by 2 percent year-over-year, consistent with the previous sequential quarter. 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, or approximately $110 million, year-over-year.
Glass segment net sales were $278 million for the quarter, down $5 million, or 2 percent, year-over-year. Improved pricing in both glass businesses was offset by the impact of unfavorable foreign currency translation, which affected net sales by about $10 million. Segment sales volumes 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 divestiture of a flat glass facility in 2014.
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