PPG Industries 3Q profit lower on restructuring, environmental expenses
Acquisitions fueled a 17 percent jump in sales at PPG Industries Inc., pushing its stock to a new high, but third-quarter profit fell because of restructuring and environmental cleanup expenses.
PPG's acquisition of AkzoNobel N.V.'s North American architectural coatings business on April 1 added $400 million in sales, but the closing of more than 80 stores and the consolidation of 500 jobs into a new architectural coatings headquarters in Cranberry contributed to after-tax restructuring expenses of $73 million.
The Downtown-based coatings and specialty products manufacturer had $56 million in environmental expenses for the cleanup of a former Jersey City plant and other sites.
As a result, PPG said on Thursday that net income fell 33 percent to $226 million, or $1.56 a share, in the July-Septembert quarter compared to net income of $339 million, or $2.18 a share, in the same period a year ago.
Sales rose to $3.98 billion, from $3.41 billion last year, mainly on the strength of coatings businesses that sell paint to aerospace and automotive markets, which jumped 34 percent.
PPG shares closed at $174.47, up $8.25, or nearly 5 percent, reaching a 52-week high. Shares have risen 28.9 percent this year.
Not counting the one-time expenses, PPG said operating profit for the quarter was $353 million, or $2.44 a share.
“We continued to deliver record financial performance,” said CEO Charles E. Bunch. “Aerospace and automotive coatings remained PPG's most consistent growth drivers.” Sales trends improved in each major region worldwide, including some initial signs of stability in Europe, he said. And the United States economy continues to grow in a “measured manner.”
Cost-cutting efforts continue, Bunch said. The architectural coatings business acquired from AkzoNobel has already realized more than half of an expected $200 million in savings.
Consolidation in Cranberry of that business will bring together AkzoNobel and PPG units that make paint for residential and commercial exteriors and walls, such as Glidden, Pittsburgh Paints and other household names, over the next 18 to 24 months. PPG also will expand its technology center in Harmar, adding about 60 jobs to a 180-employee workforce there.
PPG said its glass segment had sales of $278 million in the quarter, up $16 million, with operating profit of $21 million and profit margin of 7.6 percent.
In a conference call with analysts, Citigroup analyst P.J. Juvekar asked whether PPG's glass unit is a candidate to be sold, after sales hit a three-year high in the period. Vince Morales, PPG's vice president of investor relations, said the glass unit's profitability is still below the corporate average. “We'd like to see that go further with profitability, which a couple of years ago was in the double-digit range. So we still think those businesses have some improvement left.”
In recent years, PPG has sold less profitable units to concentrate on those such as coatings, which have profit margins ranging from 15 to 17 percent.
At the end of 2012, PPG sold its commodity chemicals business, which produces chlorine, caustic soda and other chemicals, for $2.2 billion to Georgia Gulf Corp.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.
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