THE BOTTOM LINE FOR 2003
Stronger economic expansions worldwide, industrial activity that appeared to be in recovery mode and recent cost-reduction and restructuring moves combined to give most major coatings manufacturers an improved bottom line for 2003.
For U.S.-based companies, the relative weakness of the dollar against overseas currencies also was cited by coatings producers as a plus in the profit equation for 2003.
Industry giants The Sherwin-Williams Co., DuPont Co., PPG Industries Inc. and other major coatings makers reported overall sales and profit increases and solid performances for coatings businesses for the fourth quarter and 2003 as a whole. ICI plc, another major player, reported a net loss for the fourth quarter and continued weak profits for the year, but said its Paints business posted an operating-profit increase. Akzo Nobel continued to see its results suffer from tepid economic growth in Europe and the relative strength of the euro, although the company's Coatings segment reported a fourth-quarter increase in operating income.
Positive earnings announcements also were issued by The Valspar Corp., RPM Inc. and Ameron International Corp. for those companies' most recent fiscal reporting periods.
In comments accompanying announcements on financial results, top company executives said sales and earnings benefited from the continued strength of the booming U.S. housing market, accompanied by the beginnings of a long-awaited rally by the manufacturing sector.
Automotive-coatings powerhouse DuPont Co. reported a 9% sales increase for its Coatings & Color Technologies business over 2002, and the company issued an upbeat outlook for the 2004. Chairman and CEO Charles O. Holliday Jr. said a cyclical recovery is anticipated for the world's major industrial economies, with continued expansions forecast for emerging economies.
"We saw strong economic growth in the fourth quarter and believe it will continue to gain momentum in 2004," Holliday said. "Indeed, we believe that 2004 may provide the best global economic improvement we've seen in several years."
DuPont reported 2003 net income of $973 million, compared to a net loss of $1.1 billion for 2002. Sales for the year rose 12%, to $27.0 billion. For the company's Coatings & Color Technologies business, 2003 operating income excluding exceptional items was $474 million, a 10% decline from the previous year. Sales for the business rose 9%, to $5.5 billion.
DuPont is forecasting worldwide economic growth of 3.5% for the year, which would be the strongest full-year expansion since 2000. In addition, the company said the manufacturing sectors of the developed industrial economies will grow at rates above regional gross domestic product (GDP). Key "risks and uncertainties" associated with this outlook are "sustained increases in oil and natural-gas prices or a faltering U.S. economic expansion," the company said.
Sherwin-Williams Chairman and CEO Christopher M. Connor said the company's robust sales and earnings increases for the fourth quarter and year were fueled by continued strength in architectural-coatings sales and "the beginning signs of recovery in the industrial maintenance and product-finishes markets" seen late in the year. The company reported a 6.9% increase in net income for the year, to $332.1 million, while sales rose 4.3%, to $5.41 billion. Fourth-quarter net income surged 24% from the prior-year period, to $70.8 million, on the strength of a sales gain of 11%, to $1.28 billion.
Sherwin-Williams' giant Paint Stores Segment reported a fourth-quarter operating profit of $109.8 million, a 15.7% increase from the prior-year period, as sales rose 9.7%, to $829.8 million. For the year, segment operating profit increased 1.2%, to $403.4 million, while sales rose 5.1%, to $3.5 billion.
Internationally, Sherwin-Williams said weak economic conditions in most South American countries and unfavorable foreign currency exchange rates seen during in the first half of the year improved in the second half.
For global coatings leader Akzo Nobel, Coatings-segment sales retreated 5% in 2003 from the year before, to 5.233 euros, or approximately $6.563 billion. The segment's operating income slipped 7% for the year, but ended the year with a 6% fourth-quarter increase from the year before. Overall, the company reported 2003 net income of EUR 602 million ($755 million), a 26% decline from 2002. Net income excluding one-time items was EUR 811 million, a 9% decline from the prior year. Sales for the year fell 7%, to EUR 13.051 billion ($16.933 billion).
Akzo Nobel described market conditions as "difficult" for decorative coatings in Europe, particularly in the consumer sector, while decorative-coatings sales continued to expand in "emerging markets." Chairman of the Board of Management Hans Wijers said the company's Industrial Coatings unit "held up reasonably well," including wood and coil-coatings and powder coatings. The auto-refinishes business remains "very competitive," the company said.
Wijers said Coatings sales growth was more than offset by the negative effect of currency translations and pension costs, but he said restructuring moves "resulted in solid overall performance despite difficult economic circumstances." He added that the company is "actively investing in growth opportunities in emerging markets in Asia-Pacific, which now generates 14% of our worldwide Coatings sales." He added that "balancing the mature and new markets will be our main challenge in the coming years."
The company described its Marine & Protective Coatings unit as "again a star performer," with the Powder Coatings and Industrial Finishes businesses turning in strong showings. Decorative Coatings and Car Refinishes experienced "tough business conditions," the company said.
Wijers said profit results for the Coatings segment benefited from an improvement in the business mix with the divestiture of the company's Impregnated Papers unit and "some smaller non-core businesses and idle assets." An accelerated restructuring and divestiture program resulted in a work-force reduction of 1,990 Coatings employees, partially offset by increased work-force levels in Asia-Pacific.
Wijers said its growth initiatives in Asia-Pacific include the 2003 opening of a powder-coatings plant in Vietnam and a non-stick coatings facility in China, with plans announced for a decorative-coatings expansion in China. Two wood-coatings plants are scheduled to begin operation in first half of 2004
In a forecast for 2004 as a whole, the company said earnings will fall short of results for 2003, due in part to the continued strength of the euro in relation to overseas currencies.
PPG's results swung solidly into the black with net income of $494 million for 2003 following a net loss of $69 million in 2002. The prior-year's earnings were impacted by significant charges for an asbestos-settlement plan and restructuring actions. Sales for the year rose 8%, to $8.76 billion. Sales for all of 2003 rose 8%, to $8.76 billion.
For PPG's coatings segment, 2003 operating income rose 14%, to $707 million, while Coatings sales registered a 7.3% gain, to $4.835 billion. The company said the sales increase was the result of favorable currency translations and stronger volumes in the architectural, aerospace, automotive and industrial businesses.
PPG Chairman and CEO Raymond W. LeBoeuf said optimism about the global economy grew during 2003 and continued in early 2004, "fueled by improvements in North America and Asia, where we are well positioned." Signs of improved economic growth in Europe, however, "could be negated by a stronger euro," he said.
ICI said that despite tepid earnings results for the company as a whole, the company's Paints business turned in sales and operating-profit increases for the fourth quarter, while Paints sales for the year edged down slightly. The company said sales in Latin America and Asia posted particularly strong performances, with fourth-quarter architectural-paint sales surging 36% in Latin America as the region's economies rallied from major downturns.
ICI reported 2003 net income of £20 million, or approximately $37 million, including restructuring charges and other one-time items, compared to net income of £179 million ($333 million) for 2002. Pretax profit excluding one-time items was £341 million, a 15% decline from 2002. Sales for the year fell 4.5%, to £5.849 billion ($10.9 billion).
For all of 2003, ICI's Paints business reported operating profit excluding one-time items of £203 million ($375 million), an 8% increase from 2002. Paints sales declined 1%, to £2.163 billion ($3.995 billion).
Rohm and Haas Co. swung to a profit for the fourth quarter and year following net losses in 2002, and said its coatings businesses benefited from improving electronics and architectural-coatings markets. A fourth-quarter increase in powder-coatings sales reflected "particularly strong growth in Europe and evidence of a recovery in industrial markets in North America," the company said. For the year, the company reported net earnings of $280 million, compared to a net loss of $570 million in 2002. Sales for the year rose 12%, to $6.421 billion.
Rohm and Haas's Coatings segment reported 2003 operating earnings of $133 million, a decline of 29% from 2002. Segment sales rose 15%, to $2.135 billion. Chairman and CEO Raj L. Gupta said coatings-segment sales also were boosted by a continued consumer shift to all-acrylic house paints.
RPM Inc. said it recorded record sales, earnings and earnings per share for the second quarter and first six months of the company's fiscal year ended Nov. 30, 2003. President and CEO Frank C. Sullivan said the sales gains were the result of both internal growth and the impact of acquisitions, and said increased sales for the company's industrial businesses were "long overdue."
For the six-month period, RPM said net income rose 12%, to $82.9 million, from the same period a year earlier. Sales for the period increased 11%, to $1.180 billion.
The Valspar Corp. said sales for its fiscal year ended Oct. 31, 2003, rose 5.7%, to $2.248 billion. Net income for the year edged down 6.3% from the previous year, to $112.514 million. Chairman and CEO Richard M. Rompala said results for the quarter and fiscal year were viewed as positive in light of "challenging market conditions" that included a weak industrial economy and raw-material cost pressures. Rompala said the impact on industrial-coatings sales from weakness in the manufacturing sector were "more than offset by strong performances from our architectural and packaging-coatings product lines."
For the company's first quarter ended Jan. 30, Valspar reported net income of $18.386 million, an 18% increase from the same period a year earlier. Sales for the quarter rose 7%, to $501.591 million. Rompala said the sales and earnings gains "reflect continuing strength in our Paints (architectural, automotive and specialty) segment and progressive improvements in our Coatings (packaging and industrial) segment." Sales have benefited from strength in our "core domestic business and the positive impact of currencies on our international operations," he said.
In other earnings announcements:
For Ferro's Coatings segment, fourth-quarter income from continuing operations declined 7.3%, to $21.6 million. Coatings-segment sales rose 14.1%, to $274 million. For the year, Coatings-segment income from continuing operations was $90.7 million, a 5.4% decline from 2002. Coatings sales rose 8.6%, to $1.072 billion. The company said the sales improvements for the fourth quarter and year resulted in part from favorable currency translations and stronger end-use demand in the electronics market. Volume declines, however, were reported for end-use markets for color and glass, tile coatings and porcelain enamel.