INDUSTRY NEWS EXTRA: The Economy
Continued economic weakness in the United States and an apparent slowing in European economies, combined with higher raw-material and energy costs and unfavorable currency-exchange rates, took a toll on the financial performance of major coatings manufacturers in the recently ended second quarter.
Earnings and sales declines from a year earlier were reported by several big coatings producers, with DuPont Co. sustaining a loss of more than $200 million in the period and other companies announcing sharply lower earnings.
Akzo Nobel, the world's biggest coatings maker, said it would cut 2,000 jobs and make other moves to reduce costs and boost efficiencies at 30 manufacturing sites, mostly in Europe. The Sherwin-Williams Co., the third-biggest coatings producer, reported a 21.8% decline in second-quarter net income compared to the previous year, and number-five coatings manufacturer ICI said net income dropped 7.2%. PPG Industries Inc., the second-biggest coatings producer worldwide, reported a decline of more than 24% in second-quarter earnings.
Akzo Nobel, reporting a decline of 3.4% in second-quarter net income from the same period of 2000, said "major changes to reduce cost levels" will be sought for its Coatings and Chemicals businesses. The company said a restructuring program involving the two businesses will result in the elimination of 2,000 jobs at 30 sites worldwide. Approximately 1,000 Coatings positions will be affected, mainly in Europe. Operational efficiencies will be carried out at most of the 30 sites included in the cost-cutting program, although some facilities will be closed, the company said.
Akzo Nobel reported second-quarter net income of 256 million euros (EUR), or $223 million, down from record net income of EUR 265 million for the second quarter of 2000. Second-quarter sales rose 4%, to EUR 3.7 billion. For the first six months of the year, net income was EUR 472 million, a decline of 2.5% from the prior-year period. For the company's Coatings business, second-quarter operating income was EUR 142 million, down 10% from the second quarter of 2000. Sales for the quarter rose 3%, to EUR 1.525 billion. For the first six months, Coatings operating income was EUR 228 million, a decline of 11% from the prior year. Sales for the period rose 3%, to $2.887 billion.
Sherwin-Williams said results were significantly affected by continued weakness in the U.S. and South American economies, weakening foreign currency exchange rates, and discontinued paint-retailing programs at certain customer outlets. The company reported second-quarter net income of $90.5 million, a 21.8% decline from the second quarter of 2000. Sales for the quarter fell 1.5%, to $1.41 billion. For the first six months of the year, net income was $127.4 million, a decline of 18.7% from the year-earlier period. First-half sales fell 3.2%, to $2.565 billion.
Sherwin-Williams Chairman and CEO Christopher M. Connor said profit and sales results "will continue to be challenging" through the rest of the year due to economic conditions and deferred spending in the industrial and commercial customer sectors."
DuPont Co., reporting a second-quarter operating loss of $213 million, said net income was affected by lower sales volumes, higher raw-material costs and the impact of the strong U.S. dollar. Consolidated second-quarter sales declined 11.6%, to $6.997 billion. For the first six months of the year, operating income was $271 million, down 81.8% from the prior-year period. First-half sales fell 10.6%, to $13.856 billion.
For DuPont's Performance Coatings & Polymers segment, second-quarter operating income was $17 million, a decline of 86.8% from the second quarter of 2000, while sales dropped 17.7%, to $1.514 billion. The company said the segment's sales were negatively affected by reduced auto production levels worldwide, lower refinish sales, and weakness of the euro. For the first half, the segment's operating income was $149 million, down 51.6% from the year before. Segment sales declined 11.8%, to $2.972 billion, from the previous year.
PPG reported second-quarter net income of $155 million, a 24.4% decline from the second quarter of 2000. Sales for the quarter fell 5.3%, to $2.16 billion, from record sales of $2.28 billion for the year-earlier period. For the first six months of the year, net income was $211 million, a 25.2% decline from the first half of 2001, with the first-half 2001 results including a first-quarter pretax restructuring charge of $101 million. Sales for the six-month period fell 2.3%, to $4.3 billion.
Second-quarter operating income for PPG's Coatings segment was $175 million, a decline of 14.6% from the same period of 2000. Segment sales for the quarter fell 5.8%, to $1.165 billion. For the first six months, Coatings-segment operating income was $236 million, a 36.6% decline from the prior year. First-half sales fell 6%, to $2.270 billion.
PPG said the decline in second-quarter coatings sales were due largely to lower volumes for automotive and industrial coatings.
RPM Inc., in the wake of a major restructuring program that included a 10% reduction in employees and the closing of 17 facilities, reported a 60.5% gain in net income for the company's most recent quarter and a 35% increase in net income for the fiscal year ended May 31. Excluding restructuring and other costs incurred in the prior fiscal year, the company reported a 17% gain in net income for the quarter and a decline of approximately 20% for the fiscal year.
RPM Chairman and CEO Thomas C. Sullivan said the fourth-quarter results reflected "the initial impact of our now-completed two-year restructuring program."
ICI said its Paints business reported only minor retreats in profits compared to the previous year, and Chairman Charles Miller Smith said the company had performed "relatively well in the second quarter, in spite of the difficult trading conditions in the U.S.A."
ICI reported second-quarter net income of L90 million, or approximately $128 million, a decline of 7.2% from the second quarter of 2000. Sales from continuing operations declined 4%, to $2.269 billion. For the first six months of the year, net profit was L149 million, or approximately $213 million, down 6.9% from the same period of 2000. First-half sales fell 5.5%, to $3.321 billion. For the company's Paints segment, second-quarter operating income from continuing operations was $113 million, a decline of .9% from the prior-year period. Paints sales fell 5.8%, to $1.572 billion.