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Coatings giant PPG Industries (PPG - Analyst Report) outshone earnings expectations in the third quarter of 2013 on the heels of improving demand trends across major markets, cost reduction measures and continued strong performance of its coatings business. Strength across aerospace and automotive OEM coatings supported the results.

Barring one-time items, the Pittsburgh-based company raked in earnings from continuing operations of $2.44 a share in the quarter, which topped the Zacks Consensus Estimate of $2.34. The adjusted earnings exclude one-time items including restructuring and acquisition charges.

Profit from continued operation (as reported), however, fell around 24% to $220 million or $1.52 per share from $288 million or $1.86 per share a year ago, hurt by hefty restructuring and other charges. On a consolidated basis (including discontinued operation), profit skid 33% year over year to $226 million or $1.56 per share.

PPG Industries' Board, in July, cleared a new $102 million business restructuring program. Charges associated with the move (of roughly $73 million, post-tax) weighed on the company’s bottom line.  

Revenues climbed roughly 17% year over year to $3,980 million, squeaking past the Zacks Consensus Estimate of $3,960 million. Healthy results in the coatings business was fueled by gains across automotive OEM coatings, automotive refinish and aerospace. However, the architectural coatings business was somewhat weak in the quarter.

The third quarter numbers incorporated the results of the North American architectural coatings business of Dutch paints company AkzoNobel, N.V. (AKZOY) which PPG Industries acquired in Apr 2013. The company has already achieved more than half of the expected synergies of $200 million from the acquisition.

PPG Industries, in Jan 2013, spun off its commodity chemicals business to Georgia Gulf Corp., now known as Axiall Corporation (AXLL - Snapshot Report), for $2.1 billion. The business has been reported as discontinued operation.

Shares of PPG Industries, which are up roughly 24% so far this year, rose roughly 4.6% in pre-market trading, reflecting the beat.

Segment Highlights

Revenues from the Performance Coatings division shot up 34% year over year to $1.6 billion in the quarter as gains from acquisitions more than offset a decline in volumes and unfavourable currency impact. The company saw higher sales across aerospace, automotive refinish and North American architectural coatings businesses.

Sales from the Industrial Coatings segment moved up 10% to $1.2 billion on the back of volume gains in the automotive OEM coatings business and contributions from acquisitions. Volume rose across all regions.

Revenues from the Architectural Coatings (Europe, Middle East and Africa) division edged up 1% to $571 million as positive currency impact was offset by lower volumes. The business remains affected by sustained economic weakness in the region.

Optical and Specialty Materials sales rose 11% to $313 million in the quarter on improved optical products volumes and higher silicas sales on strong demand.

Sales from the Glass segment rose roughly 6% to $278 million on improved volumes for both fiber and flat glass and better flat glass pricing.


PPG Industries exited the quarter with a healthy balance sheet with cash and cash equivalents moving up 12% year over year to roughly $1.6 billion. Total debt fell 15% year over year to around $3.4 billion.


Moving ahead, PPG Industries envisions a seasonally weaker fourth quarter than the third across several of its end markets including architectural coatings. However, it expects to gain from continued improvement in global demand trends.

While the company sees continued growth in the U.S. economy, it expects growth in emerging markets to remain inconsistent. It added that demand appears to be stabilizing in Europe where volumes still remain 20% below pre-recession levels.

PPG Industries, a Zacks Rank #3 (Hold) stock, has a diversified base of products and markets, and looks to grow its businesses strategically along with controlling costs. However, the company remains challenged by a weak European market and a still sluggish architectural coatings business.

Another chemical company Air Products (APD - Analyst Report), which retains a Zacks Rank #2 (Buy), is slated to report its fourth-quarter fiscal 2013 results on Oct 29.

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