PPG Industries, Inc. (PPG)

PPG 
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PPG Industries (PPG)

Q4 2011 Earnings Call

January 19, 2012 2:00 pm ET

Executives

Vincent J. Morales - Vice President of Investor Relations

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

David B. Navikas - Chief Financial Officer, Senior Vice President of Finance and Member of Operating Committee

Analysts

Gregg A. Goodnight - UBS Investment Bank, Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division

Robert Walker - Jefferies & Company, Inc., Research Division

Gaji Balakaneshan - Buckingham Research Group, Inc.

Robert Koort - Goldman Sachs Group Inc., Research Division

James Sheehan - Deutsche Bank AG, Research Division

Saul Ludwig - Northcoast Research

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Dmitry Silversteyn - Longbow Research LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 PPG Industries Inc. Conference Call. My name is Regina, and I will be your conference operator for today. [Operator Instructions] Today’s conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Vince Morales, Vice President, Investor Relations.

Vincent J. Morales

Thank you, Regina. This is Vince Morales, Vice President of Investor Relations for PPG Industries. Welcome to PPG's Fourth Quarter 2011 Financial Teleconference. Joining me on the call today from PPG is Chuck Bunch, Chairman of the Board and Chief Executive Officer; Dave Navikas, Senior Vice President of Finance and Chief Financial Officer.

Our comments relate to the financial information released on Thursday, January 19, 2012. As a reminder to everyone, based on our modified quarterly earnings call process, about 1 hour ago, we posted detailed commentary and the accompanying presentation slides on our Investor Center at ppg.com. The slides are also available on the webcast site for this call. We don't read those prepared remarks during the call. However, during the call, Chuck will make some opening comments reviewing the company's results and then we will move directly to Q&A.

Both the prepared commentary and discussion during the 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 the website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. For additional information, please refer to our filings with the SEC.

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

Charles E. Bunch

Thank you, Vince, and welcome, everyone. Today, we announced fourth quarter 2011 sales of $3.5 billion, up 4% versus the fourth quarter of 2010. Our fourth quarter earnings per share of $1.39 established a new fourth quarter record for the company and was achieved despite moderating global growth rates during the quarter. We delivered record earnings per share of $6.87 in 2011, with new records established each quarter despite persistent raw material inflation, uneven economic conditions globally and continued anemic construction activity in developed regions. Our continued record financial performance reflects strong execution by our global businesses, aggressive cost management and our amplified deployment of cash. Also, our end-use market and geographic diversity remained an important benefit during the year.

During the fourth quarter, overall sales volumes were flat as some customers curtailed inventory and remained cautious with their ordering patterns. This was most evident in our Commodity Chemicals segment where volumes declined 3%, and also in Europe, where we experienced a 1% volume drop. Emerging region volume growth continued, but was modest and tempered by lower Marine and Architectural Coatings volumes, along with the negative impacts resulting from the Thailand flooding which reduced our Optical Products activity levels.

We continued to benefit from improving global demand in Aerospace, Automotive OEM and several general industrial markets, and we supplemented this growth with PPG market share gains. Also aiding our sales was higher pricing with improvements in each business segment, marking the seventh consecutive quarter where the company has delivered higher pricing. The higher pricing offset raw material cost inflation as inflation rates stabilized during the quarter. We are implementing further pricing in 2012 to offset inflation we absorbed in 2011.

Lastly, cash generation remained strong and was about $1.4 billion for the full year, up nearly 10%. Throughout the year, we deployed our cash with a focus on earnings accretion and continuing our heritage of returning cash to shareholders. We purchased 2.7 million shares of stock in the fourth quarter and 10.2 million shares during the year. We also raised our dividend, marking 40 consecutive years of annual dividend increases. In total, dividend and share repurchases equaled $1.2 billion or 85% of the cash we generated from operations. We ended the year with about $1.5 billion in cash and short-term investments.

Looking ahead, we anticipate first quarter 2012 growth to remain uneven by region and vary by industry, similar to the fourth quarter of 2011. We expect Europe to remain the most challenging region. We anticipate moderate strengthening in the U.S. economic recovery, supported by an enhanced global cost position in the industrial sector due to lower natural gas prices. Aggregate emerging region growth rates are expected to remain high compared to developed regions, but more moderate and erratic that they have been in the past. As a result, we will be very proactive in managing our businesses as we deal with these uncertain market conditions. Also, we intend to continue to prudently deploy our strong cash position towards earnings accretion and rewarding shareholders, and are targeting to end 2012 with a cash balance below $1 billion.

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