Third quarter 2012 results included after-tax charges of $9 million for costs directly related to the company’s previously announced agreement to separate its commodity chemicals business and merge it with Georgia Gulf Corporation or a subsidiary of Georgia Gulf. The company anticipates additional separation costs in the fourth quarter. There were no nonrecurring charges in the third quarter 2011.
“We delivered record third quarter earnings per share despite uneven demand among regions and end-use markets,” said Charles E. Bunch, PPG chairman and CEO. “Our coatings segments drove the record performance on improved local currency sales and 20 percent earnings growth.
“North American sales activity remained strongest, highlighted by excellent automotive OEM and refinish coatings growth,” Bunch noted. “Business levels in Asia and Latin America were flat in aggregate but mixed by end-use market, including growth in our automotive OEM and packaging coatings businesses that was offset by weakening coatings demand due to lower marine new builds. European volume remained below the prior-year quarter, but the trend improved notably in comparison with second quarter year-over-year results due to less customer inventory destocking. Sales declined in our Optical and Specialty Materials segment in all regions due to customer inventory management actions stemming from lower growth rates in the optical channel and in anticipation of the upcoming introduction of our next-generation TRANSITIONS lenses.”
According to Bunch, sales for the entire company were flat versus the third quarter 2011 as the impact of negative currency translation offset local currency sales growth of 4 percent.
“We continued our aggressive focus on cost reduction, and the resulting improved cost performance supported our earnings growth,” Bunch said. “Improvements in manufacturing costs were coupled with savings from our restructuring actions, which remain on schedule to deliver partial-year 2012 savings of $40 million to $50 million. Also, we continue to combat cost inflation, but the raw material inflation rate has moderated in comparison with previous quarters.
“Looking to the fourth quarter, we are heading into a seasonally slower period in most end-use markets and expect little change in the inconsistent performance of economies outside North America,” Bunch said. “We also anticipate measured economic growth in North America and expect to benefit further from some of the highest growth sectors this year, such as automotive OEM and aerospace. Given the economic backdrop, we are pleased to have delivered higher earnings in each region in the third quarter and year to date. We will remain focused on aggressive management within the regions to maximize our financial performance, and we expect to benefit further from the continued implementation of restructuring actions.
Performance Coatings segment sales for the quarter were $1.2 billion, flat with the prior year. The negative impacts of foreign currency translation and slightly lower volume were offset by sales increases from acquisitions and improved selling prices. Volumes rose modestly in the U.S. and were down in all other regions. Aerospace sales grew despite progressively more difficult prior-period comparisons. Automotive refinish organic sales grew, aided by higher U.S. and emerging-region results. While refinish activity fell in Europe, the decline was not as severe as in the previous quarter due to less customer inventory destocking. U.S. architectural coatings daily sales grew by low- to mid-single-digit percentages, with growth in each channel and the strongest results in company-owned stores. Emerging-region volumes remained hampered by lower architectural demand and weakening marine new build activity, partly offset by higher global protective coatings volume. Segment earnings grew 7 percent to $203 million. In addition to the sales impacts, the segment achieved lower costs through discretionary cost management and restructuring related benefits, and while cost inflation continued, it was at a lower rate than in prior periods.
Industrial Coatings segment sales for the quarter were $1.1 billion, an increase of $51 million, or 5%, versus the prior year. Strong volume growth, pricing and acquisitions added to sales, but these were partly offset by notable currency translation that reduced sales by approximately $50 million. Robust automotive OEM coatings volume growth continued globally despite European weakness, with company gains easily outpacing industry growth. Demand in the industrial coatings business was lower and uneven by region and end-use application, including weaker consumer electronics demand partly offset by higher automotive parts activity. Packaging coatings volume grew within emerging regions, helping offset weaker results in developed regions. Segment earnings for the quarter were $153 million, an increase of $52 million, as the earnings impact from the higher sales combined with lower manufacturing costs stemming from ongoing cost management and restructuring benefits.
Architectural Coatings – EMEA (Europe, Middle East and Africa) segment sales for the quarter were $564 million, a decrease of $9 million, or 2%, versus the prior year. Currency translation negatively impacted sales by approximately 11%, while sales from the Dyrup acquisition completed in January 2012 increased sales 8% providing a partial offset. Volumes declined by low-single-digit percentages; however, the decline was less severe than in the previous quarter. Despite the reduced volumes, segment earnings grew by $3 million versus the prior year to reach $56 million, aided by restructuring cost benefits and an improved sales margin mix. On a year-to-date basis the Dyrup acquisition increased segment sales by 9%, but the Dyrup business traditionally experiences a sales decline in the fourth quarter that exceeds that of the overall segment, reflecting the seasonal nature of the products acquired with the business.