PPG Industries, Inc. (PPG)

PPG 
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PPG Industries (PPG)

Q3 2012 Earnings Call

October 18, 2012 2:00 pm ET

Executives

Vincent J. Morales - Vice President of Investor Relations

Charles E. Bunch - Chairman, Chief Executive Officer and Member of Operating Committe

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

Analysts

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Abhiram Rajendran - Crédit Suisse AG, Research Division

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

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

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

Dmitry Silversteyn - Longbow Research LLC

Daniel Jester - Citigroup Inc, Research Division

Duffy Fischer - Barclays Capital, Research Division

Kevin Hocevar - Northcoast Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 PPG Industries Earnings Conference Call. My name is Shaquana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Vince Morales, Vice President, Investor Relations. Please proceed, sir.

Vincent J. Morales

Thank you, Shaquana. Good afternoon. This is Vince Morales, Vice President of Investor Relations for PPG Industries. Welcome to PPG's third quarter 2012 financial teleconference.

Joining me from PPG on the call today is Chuck Bunch, Chairman of the Board, Chief Executive Officer; and Dave Navikas, Senior Vice President, Finance and Chief Financial Officer.

Our comments relate to the financial information released on Thursday, October 18, 2012. I will remind everyone that approximately one hour ago we posted detailed commentary and accompanying presentation slides on the Investor Center at our website, ppg.com. Those slides are also available on the webcast site for this call. They provide additional support to the opening comments Chuck will make momentarily. Following Chuck's perspective on the company's results for the quarter, we will move directly to Q&A.

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 also available on our website, reconciliations of these non-GAAP financial measures to the mostly -- most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC.

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

Charles E. Bunch

Thank you, Vince, and welcome, everyone. Our earnings growth continued during the third quarter as we posted our ninth consecutive quarterly earnings record. Our adjusted earnings per share of $2.24 were up 14% versus last year and were up despite continued variation in regional economic performance. North America remained our strongest region with improved demand in most businesses, led by automotive OEM coatings gains. European volumes declined versus the prior year. However, the trend improved in comparison with the second quarter year-over-year results due to less customer inventory destocking. Emerging region demand was mixed by end-use market, ending flat in the aggregate. Currency translation remained a negative to sales and earnings.

We were pleased to deliver higher earnings in each region for the quarter and year-to-date despite the mixed regional economic performance and negative currency translation impact. This was aided by our total coatings segment earnings, which grew by 20% versus the prior year as local currency sales growth was supplemented by continued operational execution. Earnings in our remaining segments were lower year-over-year, including the impact from lower optical product sales due to customer inventory management initiatives, stemming from the upcoming introduction of our new Transitions Generation VII product and lower optical consumer end-market growth rates.

We also delivered strong cash performance, with year-to-date cash generation up over 33% and cash and short-term investments totaled $2 billion at the end of the quarter.

Our excellent financial performance in the quarter and year-to-date is a direct result of our aggressive operational execution and further illustrates the benefits of our broad global business portfolio and the effectiveness of our ongoing cash deployment.

Looking to the fourth quarter, we are heading into a seasonally slower period in most end-use markets and expect little change in the inconsistent performance of economies outside North America. We also anticipate measured economic growth in North America and expect we will continue to benefit from some of the highest growth sectors this year such as automotive OEM and aerospace. We will remain focused on aggressive management within the regions to maximize our financial performance and we expect to benefit further from the continued implementation of restructuring actions. In addition, we have considerable financial flexibility, and we continue to pursue acquisitions in a disciplined manner as a primary means of deploying our strong cash position for earnings accretion.

Finally, we remain on schedule to complete the separation of our Commodity Chemicals business and the merger of that business with Georgia Gulf, with closing expected to occur by early next year.

That concludes our prepared remarks. Now, operator, would you please give instructions and open the phone lines for questions?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Kevin McCarthy, representing Bank of America Merrill Lynch.

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