PPG Reports Second Quarter 2009 Financial Results

Date: 20 July 2009
Source: PPG
and chief executive officer. “Clearly, we are continuing to experience very challenging conditions in many of our end-use markets.

However, we are encouraged as our total sales during the quarter remained fairly consistent month to month, and were also steady within each major region. This gives us a degree of confidence that most markets have stabilized, albeit at considerably lower levels than prior years.”
Bunch said that PPG’s coatings segments combined with its Optical and Specialty Materials segment accounted for 90 percent of total segment earnings and were considerably stronger than last quarter. “Specifically, our Architectural Coatings – EMEA and Performance Coatings segments delivered nearly flat year-over-year earnings in local currencies, which is a noteworthy achievement, especially when considering the volume headwinds related to the weakened economy,” he said.
Bunch attributed much of the earnings improvement and strong cash generation to the company’s strong execution and cost management across all of its businesses. “Our aggressive cost-cutting and restructuring actions are not only benefiting us today, but we are also well-positioned to capitalize as economic conditions and demand improve.
“Looking ahead to the third quarter, we expect overall market demand to improve, but only mildly,” Bunch said. He noted that the third quarter is traditionally a slower period due to seasonal trends in PPG’s businesses. “We expect sequential improvement in the U.S. automotive OEM market, but we expect the opposite for commodity chemicals.”
Bunch said that PPG ended the quarter with more than $1 billion of cash on hand and that the company intends to remain very prudent regarding the management of its cash position.
Performance Coatings segment sales in the second quarter 2009 decreased $203 million, or 16 percent, versus the prior year’s quarter. Currency conversion accounted for more than 40 percent of the sales decline, and the company also realized lower volumes in the automotive refinish business. Volumes remained down in the architectural coatings – Americas and Asia/Pacific business, but they improved versus first quarter 2009 year-over-year levels. The protective and marine coatings and aerospace businesses experienced mild volume declines. Segment earnings decreased $13 million, with currency accounting for $12 million of the decline. Lower volumes were offset by tighter cost controls and selling price gains.
Industrial Coatings segment sales for the quarter decreased $411 million, or 36 percent, due primarily to lower volumes in the automotive OEM coatings and industrial coatings businesses, reflecting the continued severe declines in global demand. Weaker foreign currencies also detracted from sales. Segment earnings for the quarter were $28 million, a decrease of $81 million from the prior year’s second quarter, due to significantly lower volumes and negative currency impacts. Substantially lower costs as a result of aggressive cost management, combined with improved pricing and lower input costs, partially offset the volume weakness. Earnings in the segment were $68 million higher than in the fourth quarter 2008, despite a slightly lower sales level.
Architectural Coatings – EMEA segment sales for the quarter decreased $140 million, or 21 percent, due in large part to weaker foreign currencies. Year-over-year volumes were down mid-single-digit percentages, but volume trends improved versus the first quarter 2009. Segment earnings decreased $16 million, with $12 million attributed to foreign currency conversion.
Optical and Specialty Materials segment sales for the quarter decreased $55 million, or 18 percent, as a result of lower sales volumes, including a 35 percent decline in silicas business sales. Segment earnings declined $15 million due largely to the lower volumes and weaker foreign currencies.
Commodity Chemicals segment sales for the quarter decreased $176 million, or 36 percent, due primarily to lower volumes and lower selling prices. The decline in demand was due to lower U.S. industrial activity. Segment earnings decreased $26 million due to lower sales volumes and lower manufacturing utilization as a result of the lower activity levels. The impact of lower input costs, primarily natural gas, was counteracted by the lower selling prices.
Glass segment sales declined $374 million compared with the prior year due largely to the AG&S business divestiture, which was completed in September 2008. Other factors contributing to the sales decline were lower volumes reflecting reduced construction and general industrial demand and weaker foreign currency. The segment loss was $7 million, a decline of $37 million due to the lower volumes and the absence of earnings from the divested AG&S business. Despite only a modest sales change versus the first quarter 2009, segment earnings improved $20 million, driven in part by improved manufacturing costs.
Last year’s second quarter results for the divested AG&S business were earnings of $10 million pretax, $6 million aftertax, or 4 cents per share.
About PPG
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.
Additional Information
PPG will hold a conference call to review its second quarter financial performance today, Thursday, July 16, at 1:30 p.m. ET. Charles E. Bunch, chairman and chief executive officer, and William H. Hernandez, senior vice president, finance, and chief financial officer, will provide commentary and host questions and answers. The dial-in numbers are: in the United States, 866-711-8198; international, 617-597-5327; passcode 83084042. The conference call will also be available in listen-only mode via Internet broadcast from PPG’s Investor Center at www.ppg.com (Windows Media Player). A telephone replay will be available beginning at approximately 4:30 p.m. ET, Thursday, July 16, through 5 p.m. ET, Friday, July 31. The dial-in numbers for the replay are: in the United States, 888-286-8010; international, 617-801-6888; passcode 34956801.
Forward-Looking Statements
Statements in this news release relating to matters that are not historical facts are forward-looking statements reflecting the company's current view with respect to future events or objectives and financial or operational performance or results. These matters involve risks and uncertainties as discussed in PPG Industries' periodic reports on Form 10-K and Form 10-Q, and its current reports on Form 8-K, filed with the Securities and Exchange Commission. Accordingly, many factors could cause actual results to differ materially from the company's forward-looking statements.
Among these factors are global economic conditions, increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials, the ability to maintain favorable supplier relationships and arrangements, difficulties in integrating acquired businesses and achieving expected synergies therefrom, the ability to penetrate existing, developing or emerging foreign and domestic markets, and economic and political conditions in international markets, foreign exchange rates and fluctuations in such rates, the impact of environmental regulations, unexpected business disruptions and the unpredictability of possible future litigation, including litigation that could result if the asbestos settlement discussed in PPG's filings with the SEC does not become effective. However, it is not possible to predict or identify all such factors. Consequently, while the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on PPG's consolidated financial condition, results of operations or liquidity.
Regulation G Reconciliation
PPG Industries believes investors' understanding of the company's operating performance is enhanced by the disclosure of net income and earnings per common share (attributable to PPG) adjusted for nonrecurring charges. PPG's management considers this information useful in providing insight into the company’s ongoing operating performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis. Net income and earnings per common share (attributable to PPG) adjusted for these items are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered a substitute for net income or earnings per common share (attributable to PPG) or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income and earnings per share may not be comparable to similarly titled measures as reported by other companies. The following is a reconciliation of reported and adjusted net income and earnings per share for the second quarter 2009 and 2008.

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