Global paint and coating supplier PPG Industries (PPG) recorded second quarter 2010 earnings of $272 million or $1.63 per share, significantly higher than the year-ago earnings of $146 million or 89 cents. Adjusting for a one-time charges related to its proposed asbestos settlement, PPG earned $1.64 per share, outshining the Zacks Consensus Estimate of $1.43 per share. Results also overtook the company’s own guidance of $1.40 to $1.50. Recovering business, particularly in the Commodity Chemicals and the Glass segments, drove earnings in the quarter.
Quarterly revenues improved 11% year-over-year to $3.5 billion on a 10% increase in sales volume. PPG’s Optical and Specialty Materials segment contributed primarily to the sales growth, which benefited from improving demand in the aerospace and auto refinish markets. Regionally, PPG saw a higher demand across the Asia-Pacific and Latin American regions, which mitigated a weak demand in North America and Europe due to a weak construction market.
Segment Review
Performance Coatings: Sales in the segment inched up 4% to $45 million with improving selling prices and favorable currency impacts. Sales volume remained unchanged compared with the year-ago levels. The segment saw recovering aerospace and auto refinish markets and a strong growth in the Asia-Pacific region. Higher revenues translated into even higher profits. The segment a 20% growth in earnings to $32 million, partially offset by higher raw material costs.
Industrial Coatings: Sales for the quarter leaped 27% year-over-year to $198 million, driven by a 25% rise in volumes. Segment earnings increased a robust 75% to $112 million helped by lower costs as a result of PPG’s restructuring and cost saving efforts.
Architectural Coatings (EMEA): Sales for the Architectural Coatings – Europe, Middle East and Africa (EMEA) segment, however, declined 5% to $27 million primarily due to volume declines offsetting the positive impact of price increases. Earnings plunged about 11% or $5 million to $50 million.
Optical and Specialty Materials: Sales in the segment jumped 18% to $46 million in the quarter on higher volumes. Earnings in the segment improved 41% to $86 million on lower costs.
Commodity Chemicals: Second quarter sales increased 13% to $41 million on volume gains, partially offset by lower selling prices. Earnings of $11 million were helped by lower costs.
Glass: Sales of $40 million, up 19% year-year-year, were driven by higher fiber glass volumes. Lower costs helped earnings of $16 million compared with a loss of $7 million in the year-ago quarter.
Financial Review
As of June 30, 2010, PPG’s debt totaled $3.1 billion, down 38% from the first quarter of 2010. Besides paying off debt, the company also bought back 1.6 million shares during the quarter. More than 4.5 million shares still remain to be bought back under its current repurchase authorization. This reduced its cash and cash equivalents by 25% to $784 million from $1.05 billion as of Mar 31, 2010.
Zacks Recommendation
Currently, PPG has a short term (1 to 3 months) Zacks #2 Rank (Buy), but a long-term (6+ months) recommendation of Neutral.
PPG has responded to the global recession with aggressive restructuring and cost reduction actions. Earnings are recovering and its strong cash position provides the financial flexibility to support earnings growth going forward. The company has been reducing its debt. Demand improvements are likely to be led by automotive production in 2010.
Analysts and investors have remained optimistic on PPG. For the second quarter, out of the 10 analysts covering the stock, 8 upped their estimates on PPG in the last 30 days. Over the last 7 days, PPG’s quarterly estimates improved 14 cents per share to $1.43 from $1.29.
Read the full analyst report on “PPG”
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