First quarter net income was $100 million, or 61 cents per share, comprising net income from continuing operations of $87 million, or 53 cents per share, and income from discontinued operations, net of tax, of $13 million, or 8 cents per share.
Reported net income from continuing operations includes non-recurring acquisition-related costs of $89 million aftertax, or 54 cents per share, stemming from the company’s Jan. 2, 2008, acquisition of the SigmaKalon Group. Adjusted net income from continuing operations was $176 million, or $1.07 per share, as detailed below. The company’s tax rate on income from continuing operations for the quarter was 30 percent.
PPG’s sales for the first quarter 2007 were $2.6 billion. First quarter net income was $194 million, or $1.17 per share, comprising net income from continuing operations of $176 million, or $1.06 per share, and income from discontinued operations, net of tax, of $18 million, or 11 cents per share. Net income from continuing operations included an aftertax charge of $5 million, or 3 cents per share, to reflect the net increase in the value of the company’s obligation under its proposed asbestos settlement agreement, which is subject to pending court proceedings. Adjusted net income from continuing operations was $181 million, or $1.09 per share. The company’s tax rate on income from continuing operations was 23 percent.
“We are very pleased to have delivered solid organic growth despite a slowdown in the overall U.S. economy,” said Charles E. Bunch, PPG chairman and chief executive officer. “We achieved this growth due, in part, to our prior investments in coatings, optical products and emerging regions, which have strengthened our overall portfolio. In addition, the recent acquisition of SigmaKalon contributed to our record first quarter results. This business, which we are successfully integrating, has exceeded our expectations.”
Bunch noted that a key measure of the company’s growth is its total business segment earnings, which increased 17 percent.
“Looking ahead, while we will likely continue to experience a difficult North American economy, we remain confident in our ability to grow both sales and earnings. This is due to our leading products and technologies, and because we have significantly broadened our geographic presence. In fact, the United States and Canada now account for only about 45 percent of our total sales,” Bunch said. “We are focused on improving our already strong cash generation, and we intend to use this cash to continue to grow earnings, initially through paying down debt.”
Performance Coatings segment sales in the first quarter increased $259 million, or 30 percent, as a result of the SigmaKalon and Barloworld acquisitions, the positive impact of stronger foreign currencies, increased selling prices and improved volumes. Segment earnings were comparable to last year, as favorable manufacturing costs and currency were offset by growth-related expenses. Stronger price gains were offset by inflation in raw materials, transportation and other costs.
Industrial Coatings segment sales for the quarter increased $189 million, or 22 percent, as a result of the SigmaKalon acquisition, stronger foreign currencies and improved volumes in all businesses. The segment experienced volume declines in North America that were more than offset by improved volumes in all other regions. Segment earnings were flat. The positive impact of higher sales volumes, stronger foreign currencies, acquisitions and lower manufacturing costs were offset by inflation and higher costs to support growth.
Architectural Coatings EMEA (Europe, Middle East and Africa) is a newly formed segment comprising about 70 percent of acquired SigmaKalon sales. Segment sales for the quarter were $536 million. Historically, first quarter sales have represented about 20 percent of the annual sales of this business, and the level in 2008 reflects low- to mid-single-digit growth year over year, excluding the favorable impact of currency. Segment earnings were $9 million, which included most of the $20 million of amortization expense related to acquired intangible assets.
Optical and Specialty Materials segment sales for the quarter increased $44 million, or 18 percent, as a result of improved volumes, particularly in the optical products business. Stronger foreign currencies and increased selling prices also added to growth. Segment earnings were up $11 million due to higher sales volumes and despite higher advertising expenses related in part to the launch of Transitions Optical’s next-generation lens product.
Commodity Chemicals segment sales for the quarter increased $52 million, or 14 percent, due primarily to increased selling prices. Segment earnings improved by $24 million, as higher selling prices and lower manufacturing costs more than offset the impact of inflation.
Glass segment sales increased $8 million, or 3 percent, based on the positive impact of stronger foreign currencies and increased selling prices. These were slightly moderated by lower sales volumes. Segment earnings improved by $13 million due to lower manufacturing costs. The absence of a prior year write-off of an investment in a fiber glass joint venture offset the negative impact of inflation.
Pittsburgh-based PPG is a global supplier of paints, coatings, chemicals, optical products, specialty materials, glass and fiber glass. The company has more than 150 manufacturing facilities and equity affiliates and operates in more than 60 countries. PPG’s sales in 2007 were $11.2 billion. SigmaKalon, a worldwide coatings producer based in Uithoorn, Netherlands, that PPG acquired Jan. 2, 2008, had 2007 sales of $2.9 billion. PPG shares are traded on the New York Stock Exchange (symbol: PPG). For more information, visit www.ppg.com.
Financial commentary from William H. Hernandez, senior vice president, finance, and chief financial officer, regarding first quarter 2008 results may be heard by telephone at 412-434-2816 until 5 p.m. ET on Friday, April 25. The commentary will also be available on PPG's Web site at Investor Center, 1st Qtr Financial Commentary. The commentary may include forward-looking statements or other material information. Additional information, including historical performance, is also available at PPG's online Investor Center at http://corporateportal.ppg.com/na/corp/InvestorCenter.
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 increasing price and product competition by foreign and domestic competitors, fluctuations in cost and availability of raw materials and energy, the ability to maintain favorable supplier relationships and arrangements, difficulties in integrating acquired businesses and achieving expected synergies there from, 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, operations or liquidity.
In the third quarter 2007, PPG signed agreements to sell its automotive OEM glass and automotive replacement glass and services businesses, now collectively called the automotive glass and services (AG&S) businesses, as well as its fine chemicals business. The sale of the fine chemicals business closed in the fourth quarter 2007. The contract the company had entered into to sell its AG&S businesses has been terminated. The company intends to sell the AG&S businesses in 2008. As a result of these actions, historical financial results for the fine chemicals and AG&S businesses are reported as discontinued operations.
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