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Paint stirs PPG Industries stock climb

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By John D. Oravecz
Thursday, Nov. 21, 2013, 12:01 a.m.
 

As PPG Industries Inc.'s stock price approaches $200 a share, a decision in the late 1990s to focus on paint as its top business is paying off, says CEO Charles Bunch.

Over the last 15 years, and more aggressively during the last five, PPG has made 30 acquisitions that have moved it into the top position worldwide in paint — called “coatings” by the industry — Bunch said.

“It's done very well,” Bunch said of the stock. “We always thought we had the potential. I think part of it is the market kind of realizing what we've been doing over the years.”

PPG's stock closed on Wednesday at $182.20, down $2.56, but it has increased 34.6 percent this year. Seven of 19 Wall Street analysts who follow the company have a price target of $200 or above.

“We continue to believe that the shares are attractive ... and raise our price target to $200,” said Ghansham Panjabi at Robert W. Baird & Co. in New York in a recent report. Share buybacks and PPG's “impressive balance sheet,” which will likely reach $2.5 billion in cash by the end of 2013, are positives.

In addition to its One PPG Place headquarters, Downtown, the 130-year-old company's local presence includes all of its research and development centers, for coatings in Allison Park, glass in Harmarville, chemical technology in Monroeville, and a plant in Springdale.

Next year, it will complete a consolidation of its North American architectural coatings unit — one of three coatings segments — in Cranberry, adding 300 jobs to the 2,500 in the region.

That move is the result of PPG's latest acquisition — of AkzoNobel NV's North American architectural coatings unit for $1.05 billion in April. With that deal PPG and AkzoNobel swapped the top positions in $120 billion coatings industry worldwide, with Akzo now No. 2.

“We felt it was the best opportunity for us to bring all of these operations, and all of the former acquisitions and the recent ones together,” Bunch said of the move to Cranberry. “Obviously, if you move locations, and some companies have done that, you can find lower tax rates or maybe more government support than we've received here. ... We felt that by making a commitment here, this will pay dividends for us in the long term.”

More than 90 percent of PPG's annual sales of $15 billion now come from coatings, as the share contributed by chemicals and glass decline. The change has been PPG's “biggest strategic priority, dating back to the late 1990s,” Bunch said. PPG now calls itself “a coatings and specialty products” company.

“In today's world, especially with globalization and heightened competition, the most important thing is for companies to focus on their strongest businesses, and we felt that was coatings,” which had the best financial performance and played to strengths in innovation, technology and customer service, Bunch said.

At first, PPG's coatings strategy was “more evolutionary,” pursuing expansion worldwide, especially in Asia, and acquisitions because the industry was “fragmented and less consolidated,” he said.

In the past decade, and more so in the last five, “we had an opportunity to get even bigger on the coatings side by making larger acquisitions,” Bunch said. “In addition, you've seen us make a couple of key strategic moves that lessened our participation in glass, as an example.”

The 2008 sale of its automotive glass manufacturing unit — half the glass business — and the purchase of SigmaKalon Group, a Dutch paint and coatings producer, for $3.1 billion — a deal that remains PPG's largest — helped position PPG for today.

“That was more proactive, and in the past year, you've seen us make three decisions that were more than just evolutionary. With the Akzo transaction, we became the largest coatings company in the world,” Bunch said.

Two others increased cash resources for more acquisitions in coatings industry: the sale of the commodity chemicals business for $2.2 billion at the end of 2012; and in July, the sale of its 51 percent stake in Transitions Optical, the inventor of plastic eyewear that darkens in bright sunlight, for $1.73 billion to partner Essilor International of France.

“You never like divesting good contributors or strong businesses, but if it strengthens your core strategy and gives you more resources ... we felt longer-term it will create value for shareholders.

“There was at one time the notion that diversified conglomerates could better balance all of these kind of different end-use markets. But I think over the last 20 years the most successful companies are the ones that have focused and not tried to do too many things, be in too many businesses,” he said. “We don't have unlimited resources, so we have to make choices.”

For now, one choice won't be to sell PPG's “heritage glass business,” which has about 7 percent of total sales.

“I guess when you look at it, we've been around for 130 years now. We started in 1883 as a glass business up the river in Creighton, but we've been in coatings since 1900, so we've been in that for 113 years,” he said. “So to me, (glass) is still a core business. ... My preference at this point would be to continue to have the business in our portfolio, if it performs.”

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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