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Strong Second-Quarter Earnings for Coating Suppliers, Chemical Companies

DuPont, PPG Industries, and Sherwin-Williams benefit from end-user demand, global activity, acquisitions, and price hikes.

The second quarter of 2011 was kind to several companies that supply chemicals and coatings to the surface finishing industry—DuPont, PPG Industries, and Sherwin-Williams among them.

Following are some of the highlights:

DuPont. Second-quarter 2011 earnings were $1.37 per share, up 17 percent versus $1.17 per share in the prior year, while sales increased 19 percent to $10.3 billion with 11 percent higher local prices, 2 percent higher sales volume, 3 percent currency benefit and a 3 percent net increase from portfolio changes. Sales in developing markets grew 29 percent and represent 30 percent of total sales.

Strong performances in agriculture, performance chemicals and safety & protection, plus the acquisition of Danisco, contributed to a 20 percent increase in segment pre-tax operating income, excluding significant items.

“Our strong second-quarter sales growth across all segments and regions resulted from consistent global execution and customer-focused innovation,” said Ellen Kullman, DuPont Chair and CEO. “We are increasing our earnings outlook for 2011 based on strong performance year-to-date and confidence in our business plans for the second half of the year.”

Increases across DuPont’s portfolios were as follows:

Performance Chemicals. Sales of $2.0 billion were up 27 percent, with 28 percent higher selling prices and 1 percent lower volume. Sales increased substantially across all major regions. Higher selling prices stemmed from strong global demand for titanium dioxide, refrigerants, fluoroproducts and industrial chemicals, and more than offset raw material increases. Lower volume reflects weather-related supply disruptions in industrial chemicals.

Performance Coatings. Sales of $1.1 billion were up 15 percent, with 14 percent higher selling prices and 1 percent higher volume. Higher selling prices reflect pricing actions across all market segments to offset higher raw material costs along with a favorable currency impact. Strong demand continued in industrial coatings, particularly in North American heavy-duty truck markets.

Performance Materials. Sales of $1.7 billion were up 11 percent, with 14 percent higher selling prices, partially offset by 2 percent lower volume and a 1 percent reduction from a portfolio change. Ongoing demand in electronic, packaging and automotive markets led to favorable pricing in all regions. Lower volume reflects supply constraints due to production outages, as well as supply chain disruptions as a result of the Japan earthquake.

PPG Industries reported sales for the second quarter 2011 of $4.0 billion, an increase of 15 percent versus the prior year’s second quarter. Each major region and reporting segment achieved volume and price gains. Net income for the quarter increased to $340 million, or $2.12 per diluted share. Second quarter 2010 sales were $3.5 billion, and net income was $272 million, or $1.63 per diluted share.

“Our strong execution during the quarter enabled us to deliver excellent financial performance, including record earnings for any quarter,” said Charles E. Bunch, PPG chairman and CEO. “We implemented further pricing initiatives and managed our businesses aggressively to overcome continued input cost inflation, a global economy that has only partially recovered and several transitory impacts to some businesses’ volumes early in the quarter. Our strong performance underscores the benefits of our broad end-use market reach and the global business portfolio we have built.”

PPG’s Performance Coatings segment sales for the quarter were $1.2 billion, up $119 million, or 11 percent, versus last year’s second quarter (a new all-time earnings record). Each business delivered higher selling prices, and foreign currency translation aided segment sales. Overall segment volumes were flat with improved volumes in aerospace and automotive refinish offsetting lower architectural coatings volumes, due principally to the impact of poor weather conditions in April. Segment earnings grew $14 million to an all-time quarterly record of $204 million, reflecting the benefit from the higher sales, as higher selling prices and lower overhead costs further countered persistent raw material cost inflation.

Industrial Coatings segment sales rose $136 million, or 14 percent, to $1.1 billion versus last year’s second quarter. Despite automotive OEM industry production curtailments stemming from the Japan crisis, the segment realized volume growth in the quarter, with Asia/Pacific posting the highest regional growth rate followed by Europe. Each business achieved higher pricing, and favorable currency translation added 8 percent to year-over-year sales. Meanwhile, sales for the Architectural Coatings–EMEA segment for the quarter of $611 million increased $111 million, or 22 percent, versus the prior year. Foreign currency translation represented two-thirds of the increase, with positive volume and price accounting for the remainder.

Bunch noted that April was the weakest month in the quarter, with negative year-over-year company volumes due to several issues including the full brunt of automotive OEM industry production curtailments due to supplier disruptions related to the March earthquake and tsunami in Japan, poor weather-related architectural painting conditions in the United States, and production downtime in the commodity chemicals segment. “Our sales volumes rebounded soundly after April, with most segments realizing mid-single-digit percentage volume gains in May and June versus last year,” Bunch explained.

PPG expects the global economic recovery will continue, although at its current uneven pace. Says Bunch: “The resumption of automotive OEM production and our position in high-growth businesses and regions, such as aerospace and Asia/Pacific, will supplement PPG’s growth in the remainder of the year.” He noted that although inflation has moderated somewhat, PPG intends to secure additional pricing in businesses where it has been unable to fully offset inflation despite aggressive cost management and further pricing actions this past quarter. These factors are expected to be coupled with continued positive price trends in the Commodity Chemicals segment, he said.

PPG also announced that it ended the second quarter with approximately $1.25 billion in cash and short-term investments. During the period, PPG finalized the acquisitions of Equa-Chlor and Ducol Coatings and announced its agreement to acquire Dyrup A/S.

The Sherwin-Williams Company announced consolidated net sales increased $211.7 million, or 9.9%, to $2.36 billion in the second quarter 2011 vs. the same period last year, and increased $501.8 million, or 13.5%, to $4.21 billion in six months due to selling price increases, acquisitions and strong organic sales growth by the Global Finishes Group. Favorable currency translation rate changes increased consolidated net sales 1.7% in the quarter and 1.4% in six months. Acquisitions increased consolidated net sales 5.1% in the quarter and 6.7% in six months.

Net sales in the Paint Stores Group increased 4.3% to $1.30 billion in the quarter and 6.3% to $2.23 billion in six months due primarily to selling price increases and improving domestic architectural paint sales to DIY and residential repaint customers. Net sales from stores open for more than 12 calendar months increased 4.0% in the quarter and 6.0% in six months over last year's comparable periods. Paint Stores Group segment profit decreased to $206.6 million in the quarter from $212.0 million last year due primarily to continuing raw material cost increases only partially offset by selling price increases. Segment profit increased to $275.5 million in six months from $259.7 million last year due primarily to sales driven by selling price increases partially offset by raw material cost increases and increases in selling, general, and administrative expenses to maintain customer service. Segment profit as a percent to net sales decreased in the quarter to 15.9% from 17.0% last year and remained flat at 12.4% in six months.

Net sales of the Consumer Group decreased 8.4% to $375.6 million in the quarter and decreased 4.5% to $670.6 million in six months due primarily to the elimination of a portion of a paint program with a large retail customer partially offset by selling price increases. Segment profit decreased to $61.4 million in the quarter from $80.7 million last year and decreased to $102.5 million in six months from $118.2 million last year. Segment profit in the quarter decreased as a percent to net external sales to 16.3% from 19.7% last year and decreased in six months to 15.3% from 16.8% due primarily to increasing raw material costs partially offset by selling price increases.

The Global Finishes Group’s net sales stated in U.S. dollars increased 39.5% to $678.9 million in the second quarter and increased 44.2% to $1.31 billion in six months due primarily to acquisitions, selling price increases, higher paint sales volume, and favorable currency translation rate changes. In the quarter and six months, acquisitions increased net sales in U.S. dollars by 22.5% and 27.5%, respectively, and favorable currency translation rate changes increased net sales by 5.9% and 4.8%, respectively. Stated in U.S. dollars, Global Finishes Group segment profit in the quarter increased to $46.1 million from $40.0 million and increased in six months to $82.9 million from $63.0 million last year due primarily to increased paint sales volume and favorable foreign currency translation rate changes. Favorable foreign currency translation had a positive effect of $3.3 million on segment profit in the quarter and $4.5 million in six months. Acquisitions had no significant impact on segment profit in the quarter or first six months.

 

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