The company cited global economic conditions, low end-market demand, and acceleration of cost-savings from the integration of the SigmaKalon businesses acquired in 2008 as reasons for the program. The planned actions are expected to deliver pretax cost savings of approximately $60 million in 2009, growing to an annual run rate of about $140 million thereafter.
Implementation of the plan is expected to cost the company approximately $160 million in cash. A pretax charge of approximately $190 million, or 88 cents per share, will be recorded in the company’s first quarter 2009 financial results. A further charge of up to $50 million is possible later this year as the evaluation and approval of other elements of this restructuring plan, including additional plant closures, are finalized. The company previously indicated that it was considering the restructuring plan announced today during the company’s fourth quarter earnings conference call in January and in the company’s annual report recently filed with the U.S. Securities and Exchange Commission.
The first quarter charge includes the cost of closure of a paint manufacturing operation at the company’s Saultain, France, plant; several smaller production, laboratory, warehouse and distribution facilities across PPG’s businesses and regions; and a broad reduction in employment across the company globally. In total, approximately 2,500 jobs will be eliminated.
“These are sweeping steps that will impact all of PPG’s business segments and regions,” said Charles E. Bunch, PPG chairman and chief executive officer. “We are making significant structural changes to the way we operate our businesses. By implementing this program, we not only will be better able to weather today’s difficult conditions, we also will be a more efficient company coming out of the current economic downturn.” Bunch said that the largest portion of the cost-reduction activity will take place in the company’s automotive OEM coatings and industrial coatings business units, which have been particularly hard hit by severe declines in global end-use market demand.
Last September, PPG announced a restructuring plan that included closing several coatings manufacturing facilities, including those in Clarkson, Ont., Canada, and Geldermalsen, Netherlands. As part of that plan, PPG closed its Owen Sound, Ont., Canada, glass manufacturing facility and idled one float glass production line at its Mt. Zion, Ill., facility. These prior actions are expected to result in pretax cost savings at an annual run-rate of about $100 million by the end of 2009, and a reduction in employment of 1,357.
“We are managing the company decisively through the current global economic downturn,” Bunch said, “with a focus on lowering our cost structure and retaining our strong liquidity position.”
In addition to its restructuring actions, PPG stated that it has implemented a wide range of cost-reducing and cash-conserving measures, including employee furloughs, salary and bonus actions, and elimination of the company match of employee contributions to 401(k) plans. Capital spending, excluding acquisitions, is being reduced by about 50 percent from the $383 million spent in 2008. Also, based on updated information, PPG estimates that its 2009 pension contributions will be reduced from the $400 million to $500 million expected at the beginning of the year to approximately $350 million.
PPG also announced that it expects first quarter 2009 adjusted earnings per share to be in the range of 10 cents to 15 cents per share, excluding the restructuring charges and the net increase in the current value of the company’s obligation under its proposed asbestos settlement agreement, which is pending court proceedings. Bunch added that the company continues to see significant weakness in its global industrial end-use markets, with even sharper deterioration in Europe. These conditions are negatively impacting results in the company’s Industrial Coatings and Glass segments, several business units in the Performance Coatings segment, and the company’s silicas business unit. He said that the company’s Architectural Coatings EMEA segment is performing at a level near last year’s first quarter, and that the Commodity Chemicals business is expected to post solid results.
Pittsburgh-based PPG is a global supplier of paints, coatings, optical products, specialty materials, chemicals, glass and fiber glass. The company has more than 140 manufacturing facilities and equity affiliates and operates in more than 60 countries. Sales in 2008 were $15.8 billion. PPG shares are traded on the New York Stock Exchange (symbol: PPG). For more information, visit www.ppg.com.