) beat earnings expectations in third-quarter 2012 although
currency headwinds dented its sales in the quarter. The company
posted earnings of $2.24 a share, excluding one-time charges,
which topped the Zacks Consensus Estimate of $2.21. The adjusted
earnings exclude charges (of $9 million) associated with the
company's move to divest its commodity chemicals business to
Georgia Gulf Corp. for $2.1 billion.
Profit (as reported) rose 9% year over year to $339 million or
$2.18 a share, aided by the Pennsylvania-based company's cost
Shares of PPG Industries, which are up roughly 40% so far this
year, were inactive in pre-market trading.
Revenues edged down 0.1% year over year to $3,845 million,
missing the Zacks Consensus Estimate of $3,904 million. Sales
were impacted by unfavorable currency exchange translation. PPG
Industries saw mixed results across its end markets in the
quarter with its North American automotive OEM coatings business
recording strong growth.
The Performance Coatings division recorded sales of roughly $1.2
billion, a 0.2% year over year growth. Better selling prices and
synergies from acquisitions were masked by lower volume and
currency translation impact. Within this segment, revenues from
aerospace, automotive refinish and architectural coatings
businesses rose in the quarter. Volumes increased modestly in the
U.S. while declining in all other regions.
Revenues from the Industrial Coatings segment increased 5% year
over year to $1.1 billion helped by higher volume and improved
pricing. Strong growth in volume in the automotive OEM coatings
business was witnessed despite softness in Europe. Volume in the
industrial coatings business fell in the quarter.
The Architectural Coatings (Europe, Middle East and Africa)
division saw a 2% decline in sales to $564 million as
contributions of Dyrup acquisition was more than offset by
unfavorable currency exchange impact. The company witnessed a low
single-digit decline in volume in this segment.
Optical and Specialty Materials sales slipped 9% year over year
to $282 million in the quarter due to the currency impact and
lower volume. The division was hit by sluggish Optical consumer
Revenues from the Commodity Chemicals segment fell 2% to $437
million on account of lower chlorine pricing. Sales from the
Glass segment dipped 4% to $262 million as lower pricing and
negative currency impact offset an increase in flat glass
The company exited the quarter with cash and cash equivalents and
short-term investments of roughly $2 billion, up 50% year over
year. Total debt increased 8% year over year to around $4
Spin off of Chemical Unit
The company, in July 2012, agreed to split its commodity
chemicals unit and merge it with Georgia Gulf. The deal value of
roughly $2.1 billion includes $95 million of debt.
Under the deal, the company's shareholders will receive 50.5% of
the shares of the merged entity while Georgia Gulf shareholders
owning the balance. The shareholders of PPG Industries will get
$1 billion in Georgia Gulf shares. The transaction is expected to
consummate in early 2013. PPG Industries expects to incur
additional charges associated with the deal in fourth-quarter
Outlook and Recommendation
Moving ahead, the company expects a seasonally slower fourth
quarter and foresees growth in North America supported by
continued momentum across automotive OEM and aerospace markets.
It will continue to execute the restructuring measures, which are
expected to fetch cost savings of $40 million-$50 million in the
second half of 2012. Moreover, the company will continue to
implement the appropriate pricing strategy to offset higher input
PPG recently agreed to buy industrial coatings company Spraylat
Corp. for undisclosed price. The acquisition, which is expected
to close later this year, will boost the company's position in
major end markets including automotive parts and architectural
PPG Industries' strategy of diversifying its business across
various products and geographies has come in handy in testing
times. However, raw material inflation remains a concern for the
PPG Industries, which competes with DuPont Performance Coatings
EI DuPont de Nemours & Co.
), retains a short-term Zacks #3 Rank (Hold). Currently, we have
a long-term Neutral recommendation on the stock.
DU PONT (EI) DE (DD): Free Stock Analysis
PPG INDS INC (PPG): Free Stock Analysis
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