PPG Industries (PPG) Q4 2008 earnings summary

Executive summary

• 2008 net sales rose 30% to $15.849B, largely from acquisitions; net income fell to $538M from $834M and diluted EPS to $3.25 from $5.03.

• Fourth-quarter net sales were $3.188B and net income was $71M, with diluted EPS of $0.43; global demand deteriorated sharply late in the year.

• SigmaKalon expanded coatings and international reach, while the automotive glass divestiture and a $163M restructuring charge reshaped operations.

Financial highlights

• Sales growth contributions: acquisitions +28%, selling prices +4%, currency +2%; offset by volume −2% and automotive glass divestiture −2%.

• Cost of sales was 64.1% of sales, unchanged YoY; SG&A was 21.7% versus 18.9%, mainly reflecting SigmaKalon’s distribution costs and higher bad-debt expense.

• Continuing-operations income was $538M versus $856M; 2008 included $163M restructuring, $89M after-tax acquisition-related costs, $11M after-tax depreciation catch-up, and a $3M after-tax divestiture gain.

• Operating cash flow was $1.358B versus $996M; cash at year-end was $1.021B after $681M of debt repayment.

Outlook and guidance

• 2009 outlook was highly uncertain and bearish; weak global industrial demand and credit conditions could persist, with recovery possibly delayed until 2010.

• Expected 2009 pension and postretirement costs to rise $100M–$125M; natural-gas costs were expected below Q1 2008, with ~50% of Q1 U.S. purchases hedged at ~$8.50/MMBtu.

• Early-2009 coatings raw-material costs were expected to decline; full-year pricing remained difficult to forecast. Productivity, lower manufacturing costs and selling prices were expected to offset inflation.

• 2009 routine capital spending was expected to be ~$200M; environmental remediation cash outlays were expected at ~$50M, with charges within the historical $10M–$49M annual range, excluding 2006.

• Additional cost reductions were under consideration; $1B of cash and borrowing capacity were expected to support operations, dividends and other obligations through the downturn.