PPG Industries, Inc. (PPG)

PPG 
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PPG Industries (PPG)

Q1 2011 Earnings Call

April 21, 2011 2:00 pm ET

Executives

Vincent Morales - Vice President of Investor Relations

Robert Dellinger - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance

Charles Bunch - Chairman of the Board, Chief Executive Officer and Member of Operating Committee

Analysts

Gaji Balakaneshan - Buckingham Research Group, Inc.

Brian Maguire - Goldman Sachs Group Inc.

David Begleiter - Deutsche Bank AG

Donald Carson - Susquehanna Financial Group, LLLP

John McNulty - Crédit Suisse AG

Robert Koort - Goldman Sachs Group Inc.

Frank Mitsch - BB&T Capital Markets

William Young - Longbow Capital

Kevin McCarthy

Dmitry Silversteyn - Longbow Research LLC

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 PPG Industries Inc. Earnings Conference Call. My name is Deanna, and I'll be the operator for today. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Vince Morales, Vice President, Investor Relations. Please proceed.

Vincent Morales

Thank you. Good afternoon. This is Vince Morales, Vice President of Investor Relations for PPG Industries. Welcome to PPG's first quarter 2011 financial teleconference. Joining me on the call today from PPG are Chuck Bunch, Chairman of the Board and Chief Executive Officer; Bob Dellinger, Senior Vice President, Finance, and Chief Financial Officer; and Dave Navikas, Vice President and Controller.

Our comments relate to the financial information released on Thursday, April 21, 2011. As a reminder to everyone, we have modified our quarterly earnings call process. Approximately 1 hour ago, we posted detailed commentary and accompanying presentation slides on the Investor Center of our website, ppg.com. The slides are also available on the webcast site for this call. We will not read those prepared remarks during the call.

During the call, Chuck will share his perspective on the company's results in the quarter, and then we'll move directly to Q&A. This modified process allows substantially more time for Q&A, while providing a similar amount of data compared to our prior approach.

Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view about future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements.

This presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For any additional information, please refer to PPG's filings with the SEC.

Now let me introduce PPG's Chairman and CEO, Chuck Bunch.

Charles Bunch

Thank you, Vince, and welcome, everyone. PPG posted record earnings per share this quarter, marking the third consecutive quarterly record for the company. We have built on the strong performance and momentum from the second half of 2010. Our year-over-year sales improved 13% to $3.5 billion, with each major region posting double-digit percentage sales increases and higher sales in every PPG reporting segment.

Higher volumes accounted for about 1/2 of our sales growth, led once again by stronger global industrial activity, which aided many of our businesses. The global industrial recovery continues with solid growth in emerging regions and North America, and with strengthening conditions in Europe.

The higher European activity levels outpaced our expectations of a few months ago. Excellent volume growth was also a key factor in the record earnings performance by our Optical and Specialty Materials segment. In construction end-used markets, activity levels remained low in the developed regions, as these markets have not demonstrated any convincing signs of imminent improvement.

Despite the market weakness, our volumes in businesses serving these markets were modestly positive in comparison with an already low prior-year base. Improved selling prices accounted for the majority of the company's remaining sales gains in the quarter.

Every reporting segment posted higher year-over-year pricing, with the most significant percentage gains in Commodity Chemicals and Glass, resulting in substantial earnings recovery in these segments versus the recession-impacted first quarter of last year.

In our Coatings businesses, higher selling prices partially offset persistent raw material cost inflation. Despite inflationary cost pressures, operating margins in each Coatings segment were essentially flat with the prior year, and our total Coatings operating earnings improved by nearly 12%. Volume and pricing gains were supplemented by continued aggressive cost management actions. We also expanded our product reformulation activities in an effort to utilize lower cost raw materials to limit inflationary impacts on our customers.

Lastly, another growth lever for us is the continued deployment of our cash for earnings accretion. While our recent acquisition activity has been minimal, we repurchased about $275 million of PPG stock during the quarter, bringing our total repurchases over the past 9 months to about $700 million at an average share price of $81. As a result, our share count has dropped nearly 3% versus last year's first quarter. In summary, our performance in the quarter was excellent. Despite persistent inflationary pressures, our overall segment margins improved by more than 300 basis points in comparison with last year, and 150 basis points sequentially versus the fourth quarter of 2010.

We posted double-digit sales growth on strong volumes and higher pricing and achieved record first quarter earnings per share. We also returned about $375 million of cash to shareholders, including $90 million of dividend. Looking ahead, we remain optimistic as we anticipate similar economic trends in the second quarter, which is seasonally our strongest sales quarter. We remain focused on offsetting inflationary pressures with expected additional price gains in the second quarter in all our businesses.

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