Armed with a beefed-up arsenal of global coatings assets — the product of an aggressive acquisition campaign over the last few years — PPG Industries Inc. wouldn’t be faulted if it tapped the brakes, tallied its trophies and cruised along on autopilot for a stretch.
But the Pittsburgh-based coatings, glass and chemicals concern also wouldn’t stun coatings-industry observers if it grabbed a headline or two with another major deal, as the company strives to maximize the payoff from its expanded deck of architectural, industrial, and specialty coatings businesses.
For now, however, PPG is more than occupied with the task of fully integrating the businesses it has acquired, which range from major suppliers of automotive-refinish and aerospace coatings to niche players in the architectural segment (see sidebar, “A Buying Spree for PPG”). That’s the assessment provided by Charles E. “Chuck” Bunch, who recently assumed the helm of PPG’s coatings operations as executive vice president of the company. Bunch succeeded E. Kears Pollock, a longtime PPG executive who surprised many in the industry when he retired in April.
Bunch, also a PPG veteran whose most recent position was senior vice president of Strategic Planning and Corporate Services, says the company has made great strides in meeting its goal of remaking its business portfolio to maximize growth potential. PPG has “done what we set out to do,” he says. And coatings have been the focus of that strategy, with the segment now constituting 55–60% of the company’s total sales.
“I think we’ve made a clear statement as to the direction of the business,” Bunch says. “We’re going to continue to make acquisitions, but I would say that we don’t feel we have to continue at the pace we’ve been on over the last couple of years. We want to make sure we’re going to be successful in integrating these businesses and exploiting what we have now.
“If the right opportunity came up, we still feel that not only do we have the financial flexibility to do it, but strategically, we’ll still make the right acquisitions.”
Coatings Operations on Track to Reach $5 Billion in Sales in 2000PPG says its coatings operations are on track to hit $5 billion in sales this year — nearly $1 billion more than 1999’s $4.1 billion and approximately twice the total only five years ago — due to a series of acquisitions. Sales for all operations — which include glass, fiberglass and chemicals — were nearly $7.8 billion in 1999.
PPG has largely placed its chips on a few key industrial-coatings sectors, particularly targeting aerospace and packaging coatings as areas of focus in addition to its longtime strengths in automotive OEM and auto refinish. Bunch says PPG now ranks in the top three, along with Valspar and ICI, in the packaging-coatings market — the result of acquisitions of the packaging-coatings businesses of BASF and Courtaulds in 1997 and 1998. PPG’s aerospace-coatings metamorphosis has been even more dramatic, taking the company from a minor niche position to one of the top suppliers worldwide. The move was made with essentially one swipe — the purchase of PRC-DeSoto, the former aerospace-coatings business of Courtaulds — in 1999.
With the PRC-DeSoto deal, Bunch says, “We acquired a very strong position in a global business that is technology-oriented, and also has higher growth rates than some of our traditional markets.” In the packaging-coatings deals, PPG believed it needed to grow by means of acquisition rather than internally, due in part to the lengthy approval process with customers and regulatory agencies that set the rules for food and beverage container.
“We lacked the global scale and the existing relationships with customers to allow us to transition from a current supply position and to introduce new products,” Bunch says.
All this wheeling and dealing involving PPG’s product-finishes operations doesn’t mean architectural paint has been relegated to a minor supporting role. But here, PPG is sticking closer to home, concentrating on its U.S. operations — where it can take advantage of economies that it could not easily exploit overseas in the more fragmented architectural market. The nature of the architectural segment makes the huge, bold leap in market position more problematic. In North America, Bunch says, PPG does not rank among the industry leaders in terms of market share, but the company can actually benefit from the segment’s diversity to find and exploit growth opportunities. Also, it makes more sense for the company to focus on certain aspects of the coatings market, “rather than try to make a major commitment on several fronts,” he says.
Proceeding along those lines of reasoning, PPG in 1998 acquired Porter Paints, the former U.S. architectural-coatings unit of Courtaulds. Last year, PPG expanded the distribution of Porter products in the Southeast with the purchase of Wattyl Paint Corp.’s retail stores. Earlier this year, the company acquired Monarch Paint Co., a regional paint manufacturer based in Texas. Meanwhile, PPG in recent years made an exit from the European architectural-coatings scene, where it was a minor player.
In other segments — automotive OEM, auto-refinish, industrial, packaging, aerospace — PPG is thinking globally rather than regionally, and holds significant positions worldwide. Bunch says the company is following the dictum that it is difficult to be a “second-tier player” and succeed “at the kind of level that PPG is looking for.
“There are no free rides out there in most of the markets we are playing in, so you have to have a strong competitive position. You can’t be an also-ran, unless you have a real small niche. But for a player in the broader market, I don’t think you’re going to be successful” with a minor position.
In the wake of its string of deals, Bunch says PPG is well on the way to integrating the various businesses. The company has closed several facilities in Europe and North America in streamlining the expanded packaging-coatings business, while eliminating duplicate sales functions. In the refinish segment, the company acquired only one former ICI facility, and restructuring has focused more on sales and marketing, with some shifting of manufacturing operations.
In a recent move affecting its aerospace operations, PPG said it would combine its aircraft-transparency and aerospace coatings and sealants businesses to form a new business unit called Aerospace Products. Bunch said the move would result in a “unified strategy” that will help create “greater value for the commercial, military and general-aviation industries we serve.”
Dennis Kovalsky, who had recently been named vice president, Aerospace Coatings and Sealants, was appointed to lead the combined business as vice president, Aerospace Products.
In addition to its expanded aerospace coatings and sealants operations, PPG said it is the world’s biggest supplier of original-equipment and replacement aircraft windshields and windows.
Acquisitions Help Company Reach Record-Setting SalesFollowing 1999 results that the company said fell short of expectations, sales and earnings in the first half of 2000 have been positive. Net income for all operations in 1999 declined 29% from 1998, to $568 million. Coatings operating income declined 4.4%, to $522 million, while sales rose 18%, to $4.1 billion. The company says the coatings segment’s results were adversely affected by acquisition-related charges, slightly lower selling prices and negative currency translations.
For the first six months of this year, net income rose 10.8%, to $344 million, from the prior-year period. Sales for the six-month period increased 12.8%, to $4.30 billion.
The company’s coatings segment set earnings and sales records in the second quarter, as the segment’s operating income rose 10% from the prior-year period, to $198 million, and sales increased 15.3%, to $1.185 billion. For the six-month period, operating profit rose 21.8%, to $358 million, and sales increased 17.2%, to $2.312 billion. The company said the segment’s results were driven by acquisitions and volume improvements for automotive OEM and industrial coatings.
Total company sales in the second quarter also set a record for any quarter at $2.21 billion, an 11.8% gain from the previous year.
“It shows that we’re getting good performance from our core businesses, and the acquisitions are contributing significantly,” Bunch says. “And the integration of the businesses is on track.”
Top R&D Priority: Looking for BreakthroughsWhile acquisitions have added considerably to sales, the company is counting heavily on technology to deliver greater returns. And PPG is looking for “breakthrough” innovation, not just a new twist on an existing product.
“We’ve always been a technology leader in the markets we participate in,” Bunch says. “I think that’s where we provide the best value for our customers and their customers.”
The company in the past year has won accolades for two new coatings technologies — commercialization of its automotive powder clearcoat at a BMW assembly plant in Germany and the “Power-Prime” two-bath electrocoat systems, currently in operation at a DaimlerChrysler plant in Brazil.
“It goes to show that there are still excellent opportunities for us to develop, introduce and commercialize significant new coatings technologies,” Bunch says. “We’re going to continue to emphasize technology in all of our businesses.”
Currently nearing the end of the development pipeline is an automotive clear topcoat given the name “CeramiClear,” which PPG hopes to roll out commercially sometime this year. “It looks very promising,” Bunch says. The product name derives from strong mar resistance and durability properties, but the company is not divulging other details.
The company also sees geography as holding growth potential, with markets in Europe, Asia and South America viewed as candidates for expanded sales. An example of that potential: PPG recently began supplying electrocoat products to Volkswagen’s mammoth assembly plant in Wolfsburg, Germany. PPG has supplied coatings to VW at other sites, but never in Germany. “That was a significant achievement for us,” Bunch says.
Building the ‘Value Chain’ Viewed as Growth CatalystIn addition to expansion through acquisitions and the introduction of new technologies, PPG’s growth blueprint emphasizes relentless attention to the customer’s requirements. This “Value Focus” directive is aimed at providing a process that allows a company to understand how its operations can add value in the view of the customer.
In the coatings segment, Bunch says that approach calls for an assessment of the entire “value chain” with customers, and using that understanding to provide a broader range of products and services and “to talk about solutions, whether that means selling more than just the coatings.” An example is PPG’s ability to supply pretreatment products for finishing processes, which “was not part of our value proposition a few years ago.”
This total-process, or Value Focus, approach has emerged most notably in developing markets such as South America and Asia, “where our customers, whether it’s a GM or a Fiat, are going into a new region and they’re not constrained by practices of the past. They’re asking, ‘What else can you do for us, PPG?’”
In some cases, PPG has assumed a hands-on role in the coating process itself, managing a laboratory or a paint line, or distributing products from other suppliers.
The rapidly evolving world of e-commerce is seen as an extension of this customer-oriented value-chain concept, Bunch says. Early this year, the company launched the OneSource Coatings website, offering industrial-coatings users the capability to order coatings, pretreatment products and other supplies online. The www.getpaint.com site, meanwhile, allows architectural-coatings users to obtain technical information and communicate with PPG representatives. Other initiatives are under way, including a program involving auto-refinish coatings, Bunch says.
Still, “e-tailing” may develop more gradually in the coatings industry, where habits and tradition are likely to hold sway with many users, than in so-called “New Economy” businesses.
“We’re certainly going to be affected, but I think the change will be a little slower,” Bunch says.
E-commerce, for now, holds a supporting role. PPG, like other major coatings-industry players, must still count more on product and process technology advances and astute business sense to drive sales, earnings and market-share gains.
“We’re not looking just for incremental improvements,” Bunch says. “ We really have to get what we feel are breakthrough opportunities in technology that really help our customers change the market, and really give us an opportunity to add value.”
Sidebar: The Bunch FileCharles E. “Chuck” Bunch was named executive vice president of PPG Industries Inc., with responsibility for the company’s coatings businesses, in April. He succeeded E. Kears Pollock, a longtime company executive who played a key role in the company’s aggressive expansion program that focused primarily on coatings acquisitions.
Prior to his appointment as executive vice president, Bunch had been senior vice president, Strategic Planning and Corporate Services. He joined the company in 1979 as an assistant to the corporate controller, and has held a series of financial and management positions, including vice president of Architectural Coatings.
A native of Philadelphia, Bunch has a bachelor’s degree in international affairs from Georgetown University and a master’s degree in business administration from the Harvard University Graduate School of Business Administration.
Pollock, who earlier this year announced his retirement after more than 30 years with the company, and Bunch both were instrumental in revamping PPG’s business portfolio through a series of acquisitions that significantly expanded the company’s coatings operations.
Commenting on the succession, PPG Chairman and CEO Raymond W. LeBoeuf said there was “no question PPG is a better company because of Kears Pollock.
“Losing someone with Kears’ experience is never easy, but Chuck Bunch is an excellent choice to lead our coatings businesses,” LeBoeuf said, crediting Bunch with playing a “pivotal role in the acquisition strategy that has resulted in our better mix of businesses.”