PPG Industries Inc. (PPG) posted net income of $228 million or $1.40 per share for the first quarter of 2011, compared with $115 million or 69 cents in the year-ago quarter.
The result surpassed the Zacks Consensus Estimate of $1.34 per share.
Net sales for the quarter were $3.5 billion, up 13% from $3.1 billion in the first quarter of 2010. It also outperformed the Zacks Consensus Estimate of $3.3 billion. The company witnessed double digit percentage sales across all its major regions.
The improvement was attributed to demand improvements, higher pricing in each of its coatings businesses, successful cost reduction initiatives and a gradual industrial recovery worldwide, partly offset by rising raw material costs and disappointing trends in the construction markets in the developed economies.
The Board of Directors of PPG Industries also approved a two cent-per-share increase in the company’s dividend, declaring a regular quarterly dividend of 57 cents per share, payable June 10 to shareholders of record May 10.
Segment Details
Revenues in the Performance Coatings segment were $1.1 billion in the quarter, versus $965 million a year ago. Segment income grew by $12 million over the prior year quarter to $139 million, driven by volume and pricing gains and a lower cost structure, though it was offset by increased raw material costs.
The impressive results were driven by strong sales growth in the aerospace, automotive refinish businesses, the protective and marine coatings business and architectural coatings – Americas and Asia/Pacific businesses.
Industrial Coatings recorded revenues of $1.0 billion and income of $116 million, both up 15% from year-ago levels of $893 million and $101 million, respectively. Positive factors affecting the improvements were higher pricing, favorable currency translation, aggressive cost management and further efforts to expand raw material sourcing, partially offset by raw material cost inflation.
Architectural Coatings (Europe, Middle East and Africa) posted revenues of $471 million, up 8% from last year’s $436 million. Income improved by 9.1% to $12 million from $11 million in the year-ago period. This segment experienced increased earnings due to higher selling prices and efforts to constantly reformulate the existing products and use new technologies like polymer technologies and Chinese-produced titanium dioxide. This was also instrumental in offsetting raw material cost inflation.
Optical and Specialty Materials revenues were $308 million, up 8% from the year-ago quarter. Income was $90 million, compared with $82 million in the first quarter of 2010. Both sales and income reported in the quarter were record achievements. The growth in this segment was driven by higher sales volumes in both businesses, partly counterbalanced by increased selling and advertising costs.
The quarter witnessed a 28% increase in revenues to $419 million for the Commodity Chemicals segment, led by improved pricing and volumes. Segment income was $97 million, witnessing a growth of $94 million compared with $3 million posted in the prior-year quarter, aided by sales improvement and lower natural gas costs. Earnings also were aided by improved manufacturing costs, as capacity utilization was at its highest level since 2007.
Revenues in the Glass segment were $258 million, compared with $220 million in the prior-year comparable period. Income was $26 million in the reported quarter, improving significantly from the year-ago loss of $3 million. The segment reaped benefits from higher volumes and pricing, lower manufacturing costs, higher equity earnings and royalty income.
Financial Position
PPG Industries had cash and cash equivalents worth $796 million as of March 31, 2011, compared with $689 million as of March, 2010. Total debt was $3.99 billion as of March 31, 2011 compared with $3.05 billion as of March 31, 2010. Inventories at the end of the quarter amounted to $1.76 billion versus $1.59 billion as of March 31, 2010.
Looking ahead, the company anticipates further pricing gains in every segment, driving volume increase for PPG that it expects to leverage into higher earnings through continued cost focus. PPG continues to work on initiatives to deploy its cash to grow earnings. The company will continue to apply its disciplined approach toward evaluating acquisitions, and expects to announce several small- to medium-sized bolt-on acquisitions over the next six to nine months.
The strong first quarter performance, along with successful adoption of growth strategies and their meaningful implementation, inspire confidence in the company. In addition, the macro economy and the concerned industry are also showing signs of recovery Therefore, PPG Industries has a Zacks #1 Rank (‘Strong Buy’) in the short term and we hold a long-term Neutral recommendation on the stock.
PPG faces stiff competition from the DuPont Performance Coatings segment of EI DuPont de Nemours & Co. (DD) and BASF Coatings AG.
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