14:47 PM | July 18, 2013 | Vincent Valk
PPG today reported second-quarter net income up 14.8% year-on-year (YOY), to $341 million, on sales up 16%, to $4.1 billion. Adjusted earnings—which exclude acquisition charges—totaled $356 million, or $2.45/share, ahead of analysts’ consensus estimate of $2.35/share, as reported by Thomson Reuters (New York). The acquisition charges were related to the acquisition of AkzoNobel’s North American architectural coatings business, which closed on 1 April.
“We achieved new sales and adjusted earnings records due to the continued strong performance of our coatings businesses, which in aggregate delivered 25% earnings growth in comparison to last year’s record level,” says PPG chairman and CEO Charles Bunch. North American results were strong because of higher industrial and automotive production, while increased consumption in China drove growth in Asia, Bunch says. Economic weakness in Europe impacted results there, however, he adds.
“An important factor to our excellent overall coatings results was higher sales in businesses such as automotive [original equipment manufacturer (OEM)] coatings, automotive refinish, and aerospace,” Bunch says.
Performance coatings segment sales were up 36% YOY, to $1.7 billion, while segment earnings rose 25%, to $255 million. The sales increase was driven by the inclusion of the acquired AkzoNobel business, while the earnings increase was driven by cost cuts and earnings from the former AkzoNobel business. Aerospace and automotive refinish sales rose, while North American architectural coatings sales declined when excluding the acquisition’s impact.
Industrial coatings segment s ales were up 13% YOY, to $1.2 billion, while segment earnings rose 34%, to $191 million. Automotive OEM coatings sales rose 12%, while industrial coatings volumes “improved modestly, with demand varied by region and end-use market,” the company says. Demand generally rose in North America and Asia but was weak in Europe.
Architectural coatings' sales in Europe, the Mideast, and Africa fell 5% YOY, to $571 million, while segment earnings were up 7.8%, to $69 million. The sales decline was due to weak regional economic conditions, while the earnings increase was due to cost cuts and restructuring.
Optical and specialty materials segment sales rose 4% YOY, to $326 million, while segment earnings rose 1%, to $96 million, because of volume increases. Glass segment sales declined 1.5%, to $269 million, while segment earnings fell 65.2%, to $8 million, because of volume declines and higher licensing costs.
The acquired AkzoNobel business, which recorded $475 million in sales during the quarter, “delivered a mid-single-digit percentage earnings return on sales, which was slightly ahead of our target,” Bunch says. The company remains confident that it will meet its cost synergy target of $200 million over three years, he adds.
PPG’s board has also approved a $102 million restructuring program, focusing on the North American architectural coatings business and acquisition integration. The program will involve a $97-million cash charge and a $5-million noncash charge on PPG’s third-quarter results, the company says.