S. coatings growth --Company ended quarter with $1.2 billion in cash and short-term investmentsPPG Industries /quotes/zigman/238720/quotes/nls/ppg PPG +7.46% today reported net sales for the second quarter 2012 of $4 billion.Net income for the quarter was $362 million, or $2.34 per diluted share, including nonrecurring charges. Adjusted net income for the quarter, excluding the nonrecurring charges, was $365 million, or $2.36 per diluted share. Second quarter 2011 net sales were $4 billion, and net income was $340 million, or $2.12 per diluted share.
Second quarter 2012 results include after-tax charges of $3 million, or 2 cents per diluted share, for costs related to the company's announced agreement to separate its commodity chemicals business and merge it with Georgia Gulf Corp. or its subsidiary. The company anticipates additional separation costs in the second half of 2012. There were no nonrecurring charges in the second quarter 2011. A Regulation G Reconciliation of second quarter 2012 adjusted net income and earnings per diluted share to reported net income and earnings per diluted share is included below.
"In the second quarter, PPG delivered the highest quarterly earnings per share in company history as a result of continued execution, strong cost discipline and effective cash deployment," said Charles E. Bunch, PPG chairman and CEO. "These record earnings were achieved despite significantly weaker European and Latin American currency exchange rates and growth that varied by region and end-use market."
According to Bunch, the negative currency impacts reduced overall sales by 5 percent and resulted in a negative 10 cents per share earnings impact versus the second quarter 2011.
"Overall, our sales in local currencies grew in the quarter, led by continued strong organic growth in North America," Bunch said. "Business in emerging regions also expanded, but results were mixed by end-use market. Organic growth in North America and emerging regions was comparable to first quarter performance; however, these gains were partly offset by a further, fairly broad step-down in European demand. These regional variations were evident in nearly all our global businesses, which resulted in an overall flattening of our worldwide volume growth rate.
"Aerospace and automotive manufacturing remained our strongest end-use markets, delivering excellent growth, and recent acquisitions aided sales and earnings results," Bunch noted.
"Looking ahead, we expect European business conditions to remain challenging, and we will continue to aggressively implement our previously announced restructuring programs focused primarily in this region. Targeted savings from these programs are between $40 million and $50 million in the second half of the year. We expect growth in North America and Asia to continue but to remain inconsistent by end-use market. Also, we continued to be impacted by coatings input cost inflation, with inflation rates this quarter similar to the first quarter. We expect to offset the negative effects of this inflation in the second half of the year with selectively higher pricing and lower commodity input costs.
"Finally, during the quarter we did not repurchase any company stock due to negotiations related to the separation and merger of our commodity chemicals business, which was announced today," Bunch said. "We will not repurchase any company stock while the announced deal is pending, but we will continue to pursue acquisitions that fit our strict financial metrics as a primary means of deploying our strong cash position."
The company reported today that cash and short-term investments totaled approximately $1.2 billion at the end of the second quarter 2012. Year-to-date cash from operations was approximately $430 million, an improvement of about $175 million versus the prior year.
Performance Coatings segment sales for the quarter were $1.2 billion, up 1 percent versus the prior year. The negative impact of foreign currency translation was offset by higher selling prices. The aerospace business delivered strong growth in all regions, and U.S. architectural coatings sales were seasonally stronger than the first quarter and improved by mid-single-digit percentages over a difficult prior-year comparison period that included channel stocking for the new OLYMPIC(R) ONEproduct. Protective and marine coatings volumes were muted, with gains in protective coatings offset by lower marine demand. Automotive refinish volumes declined due to lower European demand and customer destocking. Segment earnings for the quarter of $204 million were level with the prior-year period.
Industrial Coatings segment sales for the quarter were $1.1 billion, an increase of $24 million, or 2 percent, versus the prior year. Segment volumes grew by more than 20 percent in the United States, including strong automotive OEM (original equipment manufacturer) coatings business performance. Growth in emerging regions continued but was mixed by end-use market, including in Asia where strong automotive OEM coatings results outpaced lower demand in construction-related markets. European volumes declined by about 10 percent. Sales growth was tempered by the negative impact of foreign currency translation, which reduced sales by nearly $60 million. Selling prices improved in response to higher input cost inflation. Segment earnings for the quarter were $143 million, an increase of $28 million from the prior year. Earnings were aided by the higher volumes and continued cost discipline.
Architectural Coatings - EMEA (Europe, Middle East and Africa) segment sales for the quarter of $601 million decreased $10 million, or 2 percent, versus the prior year due to lower volumes partly offset by price. Currency translation negatively impacted sales by 10 percent but was offset by sales from the Dyrup acquisition completed in January 2012. Despite mid-single-digit segment volume declines, segment earnings grew by $14 million versus the prior year's second quarter to reach $64 million, aided by acquisition performance and continued cost-management actions. The prior year included higher costs relating to a large customer bankruptcy, and that year-over-year benefit was negated by the negative impact of foreign currency translation.
Optical and Specialty Materials second quarter 2012 segment sales of $314 million were down $12 million, or 4 percent, versus the prior year due to the negative impact of foreign currency translation. Segment volumes were flat and included negative impacts from weakened European market conditions and optical customer inventory management. Segment earnings grew $5 million year-over-year to $95 million, aided by cost management.
Commodity Chemicals segment sales for the quarter of $427 million were down $43 million, or 9 percent, versus the prior year. Selling prices were lower year-over-year and modestly lower than the first quarter 2012. Chlorine demand weakened during the quarter, and volumes were also slightly lower year-over-year. Lower natural gas input costs and cost management offset the sales declines. Segment earnings were $106 million, level with the second quarter 2011.
Glass segment sales were $273 million for the quarter, down $1 million from the prior year. Higher flat glass volumes were offset by lower pricing and the negative impact of foreign currency translation. Fiber glass pricing declined from prior-year levels, driven by reduced European and Asian demand. Segment earnings were $23 million, a decrease of $6 million from the prior-year quarter as a result of lower pricing and lower fiber glass equity earnings.
PPG: BRINGING INNOVATION TO THE SURFACE.(TM)
PPG Industries' vision is to continue to be the world's leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2011 were $14.9 billion. PPG shares are traded on the New York Stock Exchange (symbol:PPG). For more information, visit www.ppg.com.
PPG will provide detailed commentary regarding its financial performance, including presentation-slide content, on the PPG Investor Center at www.ppg.com at 1 p.m. ET today, July 19. The company will hold a conference call to review its second quarter 2012 financial performance today at 2 p.m. ET. The dial-in numbers are: in the United States, 800-299-9086; international, 617-786-2903; passcode 72778101. The conference call also will be available in listen-only mode via Internet broadcast from the PPG Investor Center at www.ppg.com (Windows Media Player). A telephone replay will be available today, July 19, beginning at approximately 4 p.m. ET, through Thursday, July 26, at 11:59 p.m. ET. The dial-in numbers for the replay are: in the United States, 888-286-8010; international, 617-801-6888; passcode 48220988. A Web replay also will be available on the PPG Investor Center at www.ppg.com , beginning at approximately 4 p.m. ET today, July 19, 2012, through Friday, July 19, 2013.