PPG Industries Inc. (PPG) posted net income of $340 million or $2.12 per share for the second quarter of 2011, compared with $272 million or $1.63 per share in the year-ago quarter. The results were on par with the Zacks Consensus Estimate.
Net sales for the quarter were $4.0 billion, up 15% from $3.5 billion in the second quarter of 2010. It also outperformed the Zacks Consensus Estimate of $3.8 billion. 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.
During the quarter, the company finalized the acquisitions of Equa-Chlor and Ducol Coatings and announced its agreement to acquire Dyrup A/S.
Segment Details
Revenues in the Performance Coatings segment were $1.2 billion in the quarter, versus $1.1 billion a year ago. The segment’s income grew by $14 million over the prior year quarter to $204 million, driven by higher selling prices, and foreign currency translation.
Overall segment volumes were flat with improved volumes in aerospace and automotive refinish, offsetting lower architectural coatings volumes, due principally to the impact of poor weather conditions in April 2011.
The segment posted earnings of $204 million, an all-time quarterly record, primarily because of higher sales. Higher selling prices and lower overhead costs offset persistent raw material cost inflation.
Industrial Coatings recorded revenues of $1.1 billion, a 14% increase versus $939 billion in the prior year quarter. The segment records income of $115 million, up 3 million from the year-ago levels of $112 million. Positive factors affecting the improvements were higher pricing and favorable currency translation. Despite automotive OEM industry production curtailments stemming from the Japan crisis, the segment realized volume growth in the quarter, with Asia/Pacific posting the highest regional growth rate followed by Europe.
Architectural Coatings (Europe, Middle East and Africa) posted revenues of $611 million, up 22% from last year’s $500 million. Income remained flat at $50 million versus the year-ago period. This segment experienced increased revenues due to volume growth, strong cost controls and currency translation which represented two-thirds of the increase. These increases were, however, offset by a $9 million charge that arose from the bankruptcy filing of the U.K.-based home center customer.
Optical and Specialty Materials revenues were $326 million, up 8% from the year-ago quarter. Income was $90 million, compared with $86 million in the second 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 including 30% growth in emerging regions, partly counterbalanced by increased selling and advertising costs.
The quarter witnessed a 31% increase in revenues to $419 million for the Commodity Chemicals segment, led by improved pricing. The segment’s income was $106 million, witnessing growth of $53 million compared with $53 million posted in the prior-year quarter, aided by higher prices despite notably higher maintenance costs due to planned and unplanned outages.
Revenues in the Glass segment were $274 million, compared with $247 million in the prior-year comparable period. Income was $29 million in the reported quarter, improving from the year-ago income of $16 million. The segment reaped benefits from higher volumes and higher fiber glass pricing and favorable foreign currency translation.
Financial Position
PPG Industries had cash and cash equivalents worth $982 million as of June 30, 2011, compared with $784 million as of June 30, 2010. Total debt was $3.61 billion as of June 30, 2011 compared with $3.02 billion as of June 30, 2010. Inventories at the end of the quarter amounted to $1.82 billion versus $1.54 billion as of June 30, 2010.
Looking ahead, the company anticipates further pricing gains in every segment, driving volume increases 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. PPG is continuing to utilize its strong cash position. In the second half of 2011, it expects to deploy $500 million to $1 billion of cash focused on earnings accretion, and will continue its tradition of returning cash to its shareholders.
The resumption of automotive OEM production and its position in high-growth businesses and regions, such as aerospace and Asia/Pacific, will supplement PPG’s growth in the remainder of the year. Although inflation has moderated somewhat, PPG intends to secure additional pricing in businesses where it has been unable to fully offset inflation despite aggressive cost management and further pricing actions this quarter.
The strong second 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.
