PPG Industries Reports Increased Sales for Quarter
PITTSBURGH – PPG Industries reported third quarter 2014 net sales from continuing operations of $3.94 billion, up $161 million, or 4%, versus the prior year. Third quarter 2014 reported net income from continuing operations was $377 million, or $2.70 per diluted share. Third quarter 2014 adjusted net income from continuing operations was $394 million, or $2.82 per diluted share, which excludes asset divestiture gains of $73 million after-tax, or 52 cents per diluted share; and charges of $86 million after-tax, or 61 cents per diluted share for an increase to legacy environmental reserves; acquisition-related costs of $2 million after-tax, or 2 cents per diluted share; and a pension settlement charge of $2 million after-tax, or 1 cent per diluted share.
Third quarter 2013 reported sales, net income and earnings per diluted share from continuing operations were $3.77 billion, $204 million and $1.41, respectively. Adjusted third quarter 2013 net income from continuing operations was $336 million, with earnings of $2.32 per diluted share, which excluded business restructuring costs of $73 million, or 50 cents per diluted share; a charge of $56 million, or 39 cents per diluted share, for an increase to legacy environmental reserves; and acquisition-related costs of $3 million, or 2 cents per diluted share.
“We continue to benefit from customer adoption of our leading technologies,” said Charles E. Bunch, PPG chairman and chief executive officer. “In the quarter, net sales increased 4%, which was consistent with the prior quarter, and earnings grew in each major region. Our sales performance was driven by continued gains in aerospace, automotive OEM coatings and automotive refinish, where our growth this quarter matched or exceeded recent quarters.
“Results remained uneven across major regions,” Bunch added. “In North America, sales gains were supported by continued moderate economic expansion. European sales improved slightly, but results remained mixed as demand improvement in some countries was offset by weaker conditions in other parts of the region. Our growth rate in emerging regions accelerated slightly in comparison with recent quarters, led by improved PPG results in Asia and Latin America.
“Our adjusted earnings per diluted share from continuing operations improved 22% versus the prior year, stemming from higher sales, an improved business mix, our ongoing disciplined cost focus, and attainment of further acquisition-related synergies,” Bunch added. “Our regional earnings expansion was largest in Europe, which advanced 17% despite the uneven regional economic performance. Earnings increased by 10% in the other major regions as well.
“Strategically in the quarter, we continued to work on customary actions related to our pending acquisition of Comex, which we still expect to close during the fourth quarter,” Bunch said. “Additionally, we completed the sale of a North American flat glass manufacturing facility, and our automotive glass equity affiliate sold one of its business lines, with both divestiture transactions generating one-time gains.
“Looking forward, while we are watchful of the pace of global economic expansion, we remain confident in our ability to deliver continued, solid earnings growth driven by the ongoing momentum we have established in many key end-use markets. Additionally, we are just now beginning to benefit from an initial recovery in several long-cycle industries, including North American commercial construction and marine new-build, which had previously detracted from our overall growth. The fourth quarter is historically our slowest quarter seasonally, and we anticipate normal seasonal trends will occur in our businesses this year,” Bunch said.
“The fourth quarter is also traditionally our strongest cash-generation period, and we continue to maintain a high degree of financial flexibility. We remain focused on opportunities to deploy cash for earnings accretion. We have a very active acquisition pipeline and expect share repurchases will remain an integral part of our cash allocation. Including the pending acquisition of Comex, we will likely spend at or above the top end of our previously communicated range of $3 billion to $4 billion of cash in years 2014 and 2015 combined on acquisitions and share repurchases,” Bunch concluded.
PPG reported cash and short-term investments totaling $3.0 billion at quarter-end. The company repurchased $150 million, or about 740,000 shares, of PPG stock during the quarter. PPG also reported year-to-date cash uses as follows: $358 million for capital spending, $269 million for dividends paid, $114 million on acquisition transactions that have closed, and $450 million on share repurchases totaling approximately 2.4 million shares.
Third Quarter 2014 Reportable Segments Financial Results
Performance Coatings segment net sales for the quarter were $2.26 billion, up $67 million, or 3%, over the prior-year period. Volume, price and acquisition-related gains all contributed to the sales growth and were supplemented by a small currency translation benefit. Sales growth was achieved in all regions, with the largest percentage gains in North America and Asia. Segment sales gains were led by mid-single-digit percentage growth in automotive refinish and aerospace, with the pace of growth for these businesses generally consistent globally. North American architectural coatings sales grew by low-single-digit percentages, with results varied by distribution channel. Architectural coatings – EMEA (Europe, Middle East and Africa) sales were flat versus an improving sales trend in the prior-year period. Demand in the region remained mixed by country, with very solid improvement in the U.K. and Eastern Europe tempered by flat or weaker trends in Western Europe. Aggregate protective and marine coatings sales also improved, aided by protective coatings growth and slightly higher marine new-build demand. Segment earnings of $345 million were up $20 million, or 6%, as a result of the increase in net sales and continued acquisition-related synergies partly countered by modest inflation including higher logistics costs.
Industrial Coatings segment net sales for the quarter were $1.4 billion, increasing $89 million, or 7%, year-over-year. Volumes grew 7%, matching the prior-quarter growth trend, and accounted for the segment sales change. Currency translation impacts were minimal. Automotive original equipment manufacturer (OEM) coatings grew by high-single-digit percentages, with corresponding growth in all major regions and exceeding the global industry growth rate of about 3.5 percent. The industrial coatings and specialty coatings and materials businesses delivered consistent sales growth across all regions of at least mid-single-digit percentages, including higher growth rates in Asia. Packaging coatings sales were modestly weaker due to lower European volumes. Total segment earnings for the quarter were $240 million, up $34 million, or 17 percent, year-over-year as a result of the higher volumes and benefits from continued cost-management actions.
Glass segment net sales were $283 million for the quarter, up $5 million, or 2%, year-over-year on higher selling prices. Segment volumes matched the prior year, and currency translation, primarily for the Canadian dollar, was unfavorable to sales results. Solid growth was achieved in flat glass volumes including higher value-added product demand for residential and non-residential end-use markets. These gains were offset by lower fiber glass volumes due to decreased product availability resulting from weaker manufacturing performance. Segment earnings were $33 million, up $12 million versus the prior year. Earnings benefited from the improved flat glass sales mix, higher volumes and manufacturing utilization, which were partly countered by lower fiber glass results and moderating year-over-year natural gas cost inflation.