PPG Industries (PPG) Q4 2006 earnings summary

Executive summary

• FY06 sales rose 8% to $11.037B, driven by acquisitions (+4%), volume (+2%) and pricing (+2%); net income was $711M and diluted EPS $4.27.

• Net income included after-tax environmental charges of $106M, legal settlement charges of $26M, restructuring charges of $23M, an asbestos obligation increase of $17M, and insurance recovery earnings of $24M.

• Growth across coatings and optical products offset weaker Commodity Chemicals volumes and challenges in automotive OEM glass; global expansion and shareholder returns remained priorities.

Financial highlights

• Net sales were $11.037B vs. $10.201B in 2005; cost of sales was 63.7% of sales vs. 63.5%, and SG&A was 17.9% vs. 17.4%.

• Net income was $711M vs. $596M; diluted EPS was $4.27 vs. $3.49.

• Operating cash flow was $1.130B vs. $1.065B; capital spending was $774M, including $402M for acquisitions.

• Other charges fell $81M YoY; 2006 included environmental remediation and legal costs, partly offset by insurance recoveries, while 2005 included legal settlements, hurricane costs, impairment and refinancing costs.

Outlook and guidance

• 2007 sales from 2006 acquisitions are expected at $700M-$800M, with meaningful earnings growth; acquisitions were slightly accretive in 2006.

• 2007 capital spending, excluding acquisitions, is expected at $350M-$400M; further acquisitions are anticipated to accelerate growth.

• Pension and postretirement benefit costs are expected to decline ~$40M in 2007; estimated effective tax rate is 31.5%.

• Environmental remediation charges in 2007 are expected within the prior $10M-$49M annual historical range; cash outlays are estimated at ~$65M in 2007 and $50M-$70M annually through 2011.

• Cost pressure from raw materials, transportation and healthcare is expected to persist; pricing and productivity are expected to offset inflation outside Commodity Chemicals and Glass.