PPG Improves, Beats Estimate - Analyst Blog

PPG Industries Inc. (PPG) reported net income (GAAP) of $205 million or $1.24 per share in the fourth quarter of 2010 compared with $142 million or 85 cents per share in the year-ago quarter. However, adjusted net income was $207 million or $1.25 per share versus $144 million or 86 cents per share during the fourth quarter of 2009.

The adjustments included after-tax charges of $2 million or 1 cent per share associated with the company's pending court proceedings related to the proposed asbestos settlement. The company has surpassed the Zacks Consensus Estimate of $1.13 per share.

The better-than-expected results were driven by record sales of protective and decorative coatings, leading the company to declare a 55 cents dividend, payable on March 11 to shareholders of record as of February 18.

Net sales for the quarter were $3.4 billion, up 9.7% from $3.1 billion in the fourth quarter of 2009. It even outperformed the Zacks Consensus Estimate of $3.3 billion.

The improvement in the results was attributed to the company's expansion in high-growth emerging markets, successful cost reduction initiatives and gradual industrial recovery worldwide, partly offset by rising raw material costs and disappointing trends in the construction markets in the developed economies.

Segment Details

Revenues in the Performance Coatings segment were $1.1 billion in the quarter versus $1.02 billion in the year-ago quarter. The segment income was $170 million compared with $149 million in the prior-year quarter.

The impressive results in the quarter were driven by double-digit percentage growth in the aerospace and protective and marine coatings businesses and solid growth in the automotive refinish business.

Industrial Coatings recorded revenues of $949 million and income of $79 million, up 10.5% and down 11.2%, respectively, from the year-ago levels of $859 million and $89 million, respectively. Positive factors affecting the improvements were a rise in volumes along with lower costs associated with restructuring activities, partially offset by inflation in raw material costs.

Architectural Coatings (Europe, Middle East and Africa) posted revenues of $426 million, down 6.8% from last year's $457 million. While income declined drastically by 81.8% to $2 million from $11 million in the year-ago period. This segment experienced a fall in revenues mainly due to currency conversion along with a negative trend in volume.

Optical and Specialty Materials revenues were $268 million, up 9% from the year-ago quarter. Income was $57 million compared with $47 million in the fourth quarter of 2009. The growth in this segment was driven by a double-digit percentage growth in volumes in both businesses, partly counterbalanced by increased selling and advertising costs.

The quarter witnessed a 22.9% increase in revenues to $376 million for the Commodity Chemicals segment led by improved pricing and volumes, partially offset by higher maintenance costs. Segment income was $73 million, witnessing a record growth compared with $8 million posted in the prior-year quarter.

Revenues in the Glass segment were $258 million compared with $223 million in the prior-year comparable period. Income was $29 million in the reported quarter, improving significantly from the year-ago loss of $1 million. The segment reaped benefits from higher fiber glass volumes, lower manufacturing costs, higher equity earnings and royalty income.

Financial Position

PPG Industries had cash and cash equivalents worth $1,341 million as of December 31, 2010 compared with $1,057 million as of December 31, 2009. Total debt was $4.04 billion as of December 31, 2010 compared with $3.07 billion as of December 31, 2009. Inventories at the end of the quarter amounted to $1.57 billion versus $1.55 billion as of December 31, 2009.

Looking ahead, the company anticipates the global economic recovery to strengthen, driving volume increase for PPG, which it expects to leverage into higher earnings through continued cost focus.

Strong fourth quarter performance along with successful adoption of growth strategies and their meaningful implementation keep us confident about the company. In addition, the macro economy and the concerned industry are also showing signs of recovery Therefore, PPG Industries has a Zacks #3 Rank (Hold) in the short term and we hold a long-term Neutral recommendation on the stock.