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PPG provides first quarter earnings guidance

07 Apr '12

4 min read

PPG Industries announced that it will report nonrecurring charges in the first quarter 2012 related to business restructuring, environmental remediation and acquisition-related expenses. As a result, the company expects first quarter 2012 earnings per diluted share in the range of 2 to 7 cents. Adjusted earnings per diluted share for the quarter, excluding the nonrecurring charges, are expected to be between $1.75 and $1.80. This compares with reported earnings per diluted share of $1.40 in the first quarter 2011. There were no nonrecurring charges in the first quarter 2011.

“Our expected first quarter operating results provide further evidence of the continuing strength and consistent earnings growth potential of our business portfolio,” said Charles E. Bunch, PPG chairman and CEO. “During the quarter, we saw the overall pace of business activity improve compared with the fourth quarter 2011. This trend was aided by modest customer restocking and normal seasonal factors, and lower natural gas costs in the United States are also contributing to our results.

“In general, business conditions during the quarter were strong in North America and solid in Asia and other emerging regions,” Bunch said. “PPG benefited from year-over-year growth in several end-use markets, including aerospace, optical, automotive OEM (original equipment manufacturer) and industrial. Also, our architectural coatings business in the United States benefited from early signs of a construction recovery and mild winter weather, but overall industry demand remained well below historical levels. Lastly, demand in Europe was muted, and we expect economic recovery to occur slowly in that region.”

For the first quarter, PPG will report an after-tax charge of approximately $164 million, or $1.06 per diluted share, related to business restructuring actions, the majority of which will occur in Europe. The pretax restructuring charge of $208 million includes cash costs of approximately $160 million and about $48 million related to the net write-off of certain assets and other non-cash items. Of the approximate $160 million of cash costs about 80 percent will be spent in 2012, with the remainder to be spent in 2013.

Bunch said the restructuring actions will impact about 2,000 employees, primarily in PPG's global architectural coatings businesses, and in other PPG businesses and administrative functions in Europe, where some actions will be implemented following consultation with applicable works councils. “These cost-reduction actions, while always difficult decisions, are needed to ensure that our cost structure is appropriate for business conditions and that all of our operations remain competitive globally,” he said.

When completed, PPG expects that these restructuring actions should result in annualized, pretax savings of about $140 million, with 2012 partial-year savings of between $40 million and $50 million.

Also, first quarter 2012 results will include a charge for estimated environmental remediation costs of about $160 million pretax, resulting in an after-tax charge of approximately $100 million, or 64 cents per diluted share. The charge primarily relates to continued environmental remediation activities at PPG's former Jersey City, N.J., manufacturing plant and associated sites, which are detailed on page 9 of the company's 2011 Form 10-K.

“Based on information developed in connection with the pending submission of a final remediation work plan to the New Jersey Department of Environmental Protection, we are now able to refine our estimate of the remediation costs,” Bunch said. “PPG has consistently stated that there were possible environmental remediation costs of $100 million to $200 million related to these sites in excess of the amounts previously reserved.”

As a result of the increase in the environmental reserve, the company anticipates total environmental remediation cash spending over the next several years, including spending at the New Jersey sites, to be about $100 million annually. PPG's environmental remediation cash spending was approximately $60 million in 2011.

Additionally, PPG will report a first quarter after-tax charge of $4 million, or 3 cents per diluted share, for the flow through to cost of sales of the step-up to fair value of the inventory purchased in the acquisitions of Dyrup and Colpisa. PPG finalized theseese acquisitions in January 2012.

PPG Industries