Further consolidation likely in US$92B global coatings industry, PPG CEO forecasts; global industrial activity expected to pick up in 2012, with growth rates in coatings industry likely to surpass GDP
December 6, 2011
– During PPG Industries’ (NYSE:PPG - News) 2011 capital markets day yesterday in New York City, Chairman and CEO Charles E. Bunch and other senior leaders discussed PPG’s transformation into a leading global coatings and specialty products company with strong and growing positions in all major geographic regions. They highlighted the company’s progress that has led to recent excellent financial performance and explained strategies for future success, including organic growth, innovation, cost and supply chain management, as well as continuing disciplined cash deployment.
“In each of the past five quarters, PPG has achieved record earnings per share, averaging nearly 30 percent above prior quarterly records, despite elevated raw material inflation and sales volumes that remain below pre-recession 2008 levels,” Bunch said. “Our record performance reflects the value-added technologies we are providing to our customers globally, our aggressive cost management and strong operational execution, and our earnings-focused cash deployment.”
Bunch said that PPG’s sales in coatings and specialty products have more than doubled since 2001 and now account for more than 80 percent of total company revenues. In addition, he said PPG’s overall sales in emerging regions have grown to account for about 26 percent of the company’s portfolio.
“In 2012, we plan to continue to pursue growth in key technology-driven businesses, notably aerospace, automotive refinish and optical, as well as in faster-growing emerging regions,” Bunch said. “In addition, we intend to maintain our keen focus on cost and operations. PPG today is a technology leader in the coatings sector, and we aim to enhance our position by delivering additional innovative solutions to our customers.”
PPG’s portfolio and geographic growth through bolt-on acquisitions continued in 2011, Bunch said, as the company completed the purchases of Equa-Chlor, a U.S.-based chlor-alkali manufacturer, and Ducol Coatings, a South African automotive refinish coatings company, and announced agreements to acquire Dyrup A/S, a European architectural coatings manufacturer, and Colpisa, an automotive original-equipment and refinish coatings manufacturer based in Colombia. Bunch said that he anticipates further consolidation in the $92 billion global coatings industry, and that PPG plans to continue to evaluate growth opportunities.
“Our outlook for global economic conditions in 2012 includes growth in global industrial activity, including increased global automotive OEM industry production, and we believe global growth rates in the coatings industry will outpace gross domestic product,” Bunch said. “We expect that lower natural gas costs will continue to be a benefit to PPG in 2012. We also anticipate a continued slow recovery in the developed regions in residential and non-residential construction markets, and that uncertainty in the European region will result in subpar growth there.”
Regarding current business conditions, Bunch said that most PPG businesses are performing in line with normal, seasonal fourth-quarter trends. Commenting on PPG’s recent declaration of force majeure for certain optical products because of flooding in Thailand, Bunch said that it would likely have a negative impact of about 8 cents to 14 cents per share on fourth quarter 2011 earnings but that there would be “minimal carryover effect into 2012.” Bunch also said that the company’s Commodity Chemicals segment could experience a 20 percent to 40 percent decrease in fourth quarter 2011 earnings sequentially over third quarter 2011 results, due in large part to “chlorine customer inventory management.”
Bunch said that PPG’s cash generation is typically strongest during the fourth quarter, and that this quarter’s cash performance is consistent with that of prior years. He also said the company’s current cash balance remains at historically elevated levels, and that PPG plans to deploy cash during 2012 in ways that are focused on earnings accretion, such as for disciplined acquisitions, expanded organic capital spending, and share repurchases and other earnings initiatives.
“Cash returned to shareholders via dividends and share repurchases has increased by nearly 100 percent the past three years versus the previous decade average,” Bunch said, “and this remains a hallmark for the company.” The company has paid uninterrupted annual dividends since 1899 and increased its dividend payment in June 2011, marking 40 consecutive years of increasing annual dividend payouts. In addition, PPG repurchased 18 million shares of stock over the past 24 months, or more than 10 percent of outstanding shares. In October 2011, PPG’s board of directors authorized the repurchase of an additional 10 million shares.
PPG: BRINGING INNOVATION TO THE SURFACE.(TM)
PPG Industries' vision is to continue to be the world’s leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2010 were $13.4 billion. PPG shares are traded on the New York Stock Exchange (symbol:PPG - News). For more information, visit www.ppg.com.
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