PPG Industries, Inc. (PPG) has reported net sales of $15.8 billion for the year-end 2008, compared with the net sales of $12.2 billion in the previous year-end. It has also reported a net income of $538 million, or $3.25 per diluted share, for the year-end 2008, compared with the net income of $834 million, or $5.03 per diluted share, in the previous year-end.
Fourth quarter 2008 net income includes after-tax earnings of $3 million, or 2 cents per share, to reflect the net decrease in the current value of the company’s obligation under its proposed asbestos settlement agreement reported in May 2002, which is pending court proceedings. Fourth quarter 2007 net income included an after-tax loss of $1 million, or 1 cent per share, for the proposed settlement.
“Without question, the fourth quarter was very challenging. Like many other companies, PPG experienced dramatic volume declines in several of the industrial end-use markets that we serve due to the rapid deterioration in the global economy,” said Charles E. Bunch, PPG chairman and chief executive officer. “Our Industrial Coatings and Glass segments were the most severely impacted and both reported operating losses in the quarter. However, the remaining segments, which represent about 70 percent of the company’s sales, delivered solid results. Throughout the quarter, we continued to implement a variety of initiatives to reduce costs in all of our businesses in response to worsening global economic conditions. These actions were taken in addition to the restructuring program we began last September.”
Bunch also commented on the company’s full year performance. “We delivered solid earnings despite rapidly rising energy and material costs and substantial demand declines, and our cash from operations was approximately $1.4 billion, which surpassed the prior year by nearly 40 percent. We ended the year with $1 billion of cash on hand, which is up from approximately $500 million at the end of 2007. This gives us tremendous financial flexibility, which is critical in today’s business climate. Our performance this past year under intensely difficult market conditions continues to demonstrate our strengthened business portfolio and the success of our strategic direction,” he said.
“Of equal importance, we have continued to transform the company, and I believe our accomplishments in this regard were greater this year than in any of the 30 years I have been with PPG,” Bunch continued. “Foremost among the actions we completed in 2008 was our acquisition of SigmaKalon. This acquisition has outperformed all of our expectations. It was the major factor that enabled us to grow our coatings sales by about 50 percent and to improve our year-over-year cash generation.”
Commenting on 2009, Bunch noted, “Overall, the progress we made in implementing our strategy this past year, including our stronger and more stable cash generation capabilities, should prove even more beneficial as we move into 2009. This has become even more important, as our early read on 2009 is that the first quarter and possibly the first half of the year is shaping up to be an even greater challenge than the fourth quarter 2008 due to further weakening demand. We continue to evaluate further cost actions that may result in additional restructuring and related cost savings during the year.”
Bunch concluded by saying that PPG is extremely proud of its heritage of rewarding shareholders, including increases in its annual dividend payments. PPG’s last dividend increase was announced Oct. 17, 2008. “Our portfolio transformation, our historically strong and growing cash flow and our longstanding, prudent fiscal discipline have positioned the company to continue rewarding shareholders into the future,” Bunch said.
Performance coatings segment sales in the fourth quarter 2008 increased $85 million, or 8%, versus the prior year’s quarter. Sales grew as a result of acquisitions – most notably the SigmaKalon protective and marine coatings business – and higher pricing in all businesses. Volumes declined, particularly in the company’s architectural coatings – Americas and Asia and automotive refinish businesses, and weaker foreign currency also reduced sales. Segment earnings were flat, as lower volumes and inflation were offset by price gains, acquisitions and tighter cost control.
Industrial coatings segment sales for the quarter decreased $166 million, or 18%, due primarily to lower volumes in the automotive OEM coatings and industrial coatings businesses, reflecting the severe declines in global demand. Weaker foreign currencies also detracted from sales. These decreases were only partially countered by the acquisition of SigmaKalon’s industrial coatings business and improved selling prices. Segment earnings decreased by $117 million due primarily to the negative effects of lower volumes. Inflation also impacted earnings and was only partially offset by higher selling prices and lower manufacturing and overhead costs. This segment is implementing the restructuring initiatives announced in September 2008 on an accelerated basis and has taken additional actions during the fourth quarter to reduce costs.
The architectural coatings Europe, Middle East and Africa (EMEA) segment represents the largest business from the SigmaKalon acquisition. Segment sales for the quarter were $414 million and segment earnings were break-even in what is traditionally the segment’s slowest quarter due to seasonal trends. Segment earnings included a combined $25 million of ongoing non-cash quarterly depreciation and acquisition-related intangible amortization.
Optical and specialty materials segment sales for the quarter decreased $4 million, or 2%. The optical products business experienced a mid-single-digit percentage volume increase with growth in all regions. Silicas sales dropped as volumes declined by 20% due to reduced demand from automotive end-use markets. Segment earnings declined $13 million, or 28%, due to lower silicas volumes and higher selling and marketing expenses related to volume growth in optical products.
Commodity chemicals segment sales for the quarter increased $31 million, or 8%, due primarily to increased selling prices partially offset by lower volumes. The decline in demand was due to lower US industrial activity. Segment earnings increased $35 million as the pricing gains more than countered the impact of lower sales volumes.
Glass segment sales declined $276 million compared with the prior year due largely to the divestiture of a majority interest in the automotive glass and services business, which was completed in September 2008. Other factors contributing to the decline in sales were lower volumes reflecting reduced construction and general industrial demand and weaker currency, which were slightly offset by higher selling prices. Segment earnings decreased by $40 million on lower volumes, lower equity and other earnings and the absence of earnings from the divested automotive glass and services business.
Fourth quarter 2007 results for the divested automotive glass and services business were sales of $230 million and earnings of $5 million pretax, $3 million aftertax, or 2 cents per share.
Reported net income includes aftertax charges of $110 million, or 67 cents per share, for business restructuring; $89 million, or 54 cents per share, in non-recurring acquisition-related costs stemming from the company’s January 2008 acquisition of SigmaKalon; $11 million, or 7 cents per share, to reflect the catch-up of depreciation expense, which was suspended when the automotive glass and services business was previously classified as a discontinued operation; $12 million, or 7 cents per share, relating to the impact of benefit changes, including accelerated vesting, negotiated as part of the sale of the automotive glass and services business; and $2 million, or 1 cent per share, to reflect the net full year increase in the current value of the company’s obligation under its proposed asbestos settlement.