) racked up record quarterly earnings in second-quarter 2012
despite lower sales. The company posted earnings of $2.36 a share,
excluding items, which came in line the Zacks Consensus Estimate.
The adjusted earnings exclude charges associated with the company's
move to divest its commodity chemicals business to Georgia Gulf
Corp. for $2.1 billion.
DU PONT (EI) DE (DD): Free Stock Analysis
PPG INDS INC (PPG): Free Stock Analysis Report
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Profit (as reported) rose 6.5% year over year to $362 million or
$2.34 a share, helped by the company's cost containment measures.
PPG Industries reported a profit of $340 million or $2.12 a share a
Shares of PPG Industries, which are up 22% so far this year, jumped
$6.86 (or 6.58%) in pre-market trading.
Revenues slipped 0.8% year over year to $3,955 million, missing the
Zacks Consensus Estimate of $4,153 million. Sales were dented by
unfavorable currency exchange swings. The Pennsylvania-based
company said that currency translation reduced it sales by 5% in
PPG Industries saw mixed results across its end markets in the
quarter with its aerospace and automotive OEM coatings businesses
recording strong growth. Strong internal growth in domestic market
was somewhat offset by softness in Europe.
Revenues from the Performance Coatings division crept up 1% year
over year to roughly $1.2 billion as better selling prices helped
offset the currency translation impact. The company noted that its
aerospace business delivered strong growth in the quarter while
architectural coatings revenues rose by mid single-digits. Weak
volumes were witnessed across automotive refinish and marine
Industrial Coatings sales edged up 2% year over year to $1.1
billion. Domestic sales volumes rose over 20% in the quarter driven
by strong performance of automotive OEM coatings business. Results
in emerging markets were mixed while Europe witnessed a decline
(volume down roughly 10%).
Revenues from Architectural Coatings (Europe, Middle East and
Africa) dipped 2% to $601 million as improved pricing was more than
masked by lower volumes. In addition, contributions of Dyrup
acquisition was neutralized by unfavorable currency exchange
Optical and Specialty Materials sales fell 4% to $314 million in
the quarter due to the currency impact and soft market conditions
in Europe. Revenues from the Commodity Chemicals segment clipped 9%
year over year to $427 million on account of weak chlorine demand
and lower pricing and volume. Sales from the Glass segment fell
marginally to $273 million as lower pricing and negative currency
impact offset an increase in flat glass volumes.
The company ended the quarter with cash and cash equivalents and
short-term investments of roughly $1.2 billion, flat year over
year. Total debt decreased 3% year over year to around $3.6
billion. The company did not repurchase shares during the quarter
given the negotiation associated with the spin-off of its commodity
Spin off of Chemical Unit
In addition to posting record earnings, the company also announced
a definitive agreement, under which, it will 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 agreement, 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 late 2012 or early 2013.
Outlook and Recommendation
Moving ahead, the company expects the European market to remain
under pressure and foresees inconsistent growth in North America
and Asia. It will continue to execute the restructuring measures in
its European operation, which are expected to fetch cost savings of
$40 million-$50 million in the back half of 2012. The company
expects higher input costs to continue to weigh on its results in
the second half. But it will implement the appropriate pricing
strategy to offset the impact.
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
Currently, we have a long-term Outperform recommendation on PPG
Industries. The company, which competes with DuPont Performance
Coatings segment of
EI DuPont de Nemours & Co.
), holds a short-term Zacks #2 Rank (Buy).