PPG Reports Third Quarter 2009 Financial Results

The company reported net income of $159 million, or 96 cents per share. Adjusted net income was $161 million, or 97 cents per share. Third quarter 2008 sales were $4.2 billion, reported net income was $117 million, or 70 cents per share, and adjusted net income was $227 million, or $1.37 per share.
 
The third quarter sales decline of $1 billion included a $229 million impact from the 2008 divestiture of a majority interest in the automotive glass and services (AG&S) business, and about a $150 million impact from negative foreign currency translation. Year-over-year sales volumes decreased by about $500 million, or 12 percent, with declines in most regions, except Asia/Pacific. Selling prices declined by about $150 million versus last year’s third quarter, primarily due to lower commodity chemicals pricing.
 
Third quarter 2009 net income includes an aftertax charge of $2 million, or 1 cent per share, to reflect the net increase in the current value of the company’s obligation under its proposed asbestos settlement, which is pending court proceedings. Reported third quarter 2008 net income included aftertax charges of $110 million, or 67 cents per share, for business restructuring and $3 million, or 2 cents per share, for the proposed asbestos settlement. Third quarter 2008 net income also included an aftertax gain of $3 million, or 2 cents per share, on the divestiture of the AG&S business.
 
“In the quarter, we continued to restore profitability and to deliver strong cash generation,” said Charles E. Bunch, PPG chairman and chief executive officer. “We benefited from our aggressive cost-reduction actions, as well as a modest improvement in demand versus the first half of 2009, stemming from a very gradual recovery in the global economy.”
 
Bunch said that PPG’s third quarter adjusted earnings per share showed ongoing growth over the first two quarters of 2009. The company reported adjusted earnings per share in the first and second quarters of 2009 of 19 cents and 91 cents, respectively.
 
Bunch said the company’s efforts to transform its business portfolio over the past several years were evident in the third quarter results. PPG’s combined coatings and Optical and Specialty Materials segments achieved 7 percent higher year-over-year earnings and collectively accounted for more than 95 percent of total segment earnings, according to Bunch. “Additionally, we capitalized on our expanded geographic footprint and posted record earnings in the Asia/Pacific region due to stronger year-over-year performance in China. These improved results partially offset lower year-over-year earnings in our Glass segment and in our Commodity Chemicals segment, a business that experienced record sales and earnings levels last year.
 
“Also, due to our focus on working capital management, we generated about $650 million of cash from operations in the quarter,” said Bunch. “This is about 40 percent more than last year’s third quarter. We repaid about $700 million of debt in the quarter, and we still have about $900 million of cash on hand.
 
“Looking ahead to the fourth quarter, we anticipate only modest improvement in the overall economy. We expect growth in Asia to continue, and we anticipate that global automotive production will remain at least at the third quarter levels, if not higher,” Bunch said. “Currency translation, which had been a headwind for PPG all year thus far, will likely shift to a tailwind. What’s more, many of our businesses will exhibit normal, slower seasonal demand patterns.”
 
Performance Coatings segment sales in the third quarter 2009 decreased $154 million, or 13 percent, versus the prior year’s quarter. Sales declined as a result of lower volumes across all businesses. Weaker foreign currency was also a factor, offset by pricing gains. Segment earnings increased $7 million, or 5 percent, due to lower overhead costs resulting from aggressive cost-management strategies and restructuring actions. Currency translation was a $6 million earnings headwind, while other factors generally countered one another.
 
Industrial Coatings segment sales for the quarter decreased $198 million, or 19 percent, due primarily to lower year-over-year volumes in the automotive coatings and industrial coatings businesses, reflecting the continued severe declines in global demand. Demand in the third quarter, however, improved from the first two quarters of 2009. Weaker foreign currencies were also a negative factor. Segment earnings for the quarter were $58 million, an increase of $10 million from the prior year’s third quarter, primarily as a result of aggressive cost-reduction actions. The negative effect from lower volumes was partially countered by more favorable pricing and input costs.
 
Architectural Coatings – Europe, Middle East and Africa (EMEA) segment sales for the quarter decreased $73 million, or 12 percent, with $50 million of the decline attributable to weaker foreign currencies. Slightly lower volumes contributed to the sales decline. Segment earnings decreased $2 million, as the slightly lower volumes were coupled with a negative $8 million attributable to foreign currency conversion. These declines slightly overshadowed the savings from cost-reduction initiatives.
 
Optical and Specialty Materials segment sales for the quarter decreased $33 million, or 11 percent, as a result of lower sales volumes. Segment earnings increased $6 million due largely to lower costs, which more than offset the negative impact of the lower volumes.
 
Commodity Chemicals segment sales for the quarter decreased $213 million, or 43 percent, due primarily to declines in year-over-year selling prices and volumes. Segment earnings decreased $97 million due to the lower selling prices, which were only partially offset by lower energy costs and other cost savings measures. In the quarter, selling prices improved in September, following declines in July and August.