PPG's Fourth-Quarter 2014 Profit Drops on Refinancing, Acquisitions, Sales Grow 6%

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Researched by Industrial Info Resources (Sugar Land, Texas)--Paints, coatings and glass producer PPG Industries (NYSE:PPG) (Pittsburgh, Pennsylvania) reported Thursday its fourth-quarter net income fell to $83 million from $254 million a year earlier. PPG said its adjusted net income from continuing operations was $293 million, after excluding debt refinancing charges and costs related to its acquisition of Consorcio Comex (Mexico City, Mexico).

Fourth-quarter sales rose 6% from the same period a year earlier to $3.71 billion.

Industrial Info is tracking 20 active PPG-related projects worth $334.12 million. The company's grassroot coatings plant in Lipetsk, Russia, has a total investment value of $57.87 million. The plant will produce 25,000 tonnes per year of water-based coatings. Site preparation work is under way, with completion set for third-quarter 2015.

Charles Bunch, PPG's chairman and chief executive officer, said in the company's earnings release that global sales volumes increased 4% in the fourth quarter. Sales by the Performance Coatings segment jumped 10% to $2.1 billion over the same period in the prior year, primarily due to PPG's $2.3 billion acquisition of Mexican paint company Comex. PPG completed the acquisition in November.

Comex accounted for $175 million in sales for PPG's Performance Coatings Segment in the fourth quarter. Chief Financial Officer Frank Sklarsky said during the earnings conference call that the Comex acquisition is expected to add $1 billion to PPG's sales revenue for an entire year.

Fourth-quarter sales for the Industrial Coatings segment were $1.34 billion, an increase of 1% over fourth-quarter 2013. Glass segment net sales were $272 million for the quarter, up 3%.

Capital expenditures (capex) were $229 million for the fourth quarter, and $587 million for the year to date, the company reported. Capital expenditures for 2015 will amount to 3.5% to 4% of sales.

Looking forward, PPG executives said during the company's earnings conference call that they expect sales growth rates to be consistent with those of 2014. Sales growth in the North American and Asian economies are expected to grow at rates similar to those in 2014, while sales in Europe will remain subdued. European economies stand to benefit from the lower oil prices, they added.

Unfavorable foreign currency exchange rates amid a strengthening U.S. dollar are expected to put a dent in PPG's international earnings and revenues in 2015. Sklarsky told investment analysts that the exchange rates will cost PPG $650 million to $750 million in revenue, and $65 million to $75 million in earnings.

Bunch said PPG could benefit from lower oil prices by reducing raw material costs. He said he expected lower oil prices to have a "modest impact" on raw materials costs. He said 20% of the company's raw materials are derived from hydrocarbons.

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