Thursday February 22
PPG "Sticks to Knitting" for Earnings Growth and ROC
NEW YORK -- PPG Industries is "engaged in meaningful change ... within the context of sticking to our knitting" of what it does best, pursuing greater earnings growth and consistency while targeting 15 percent minimum return on capital, its chief executive said at a Morgan Stanley Dean Witter conference for chemical industry analysts and investors.
Board Chairman Raymond W. LeBoeuf said that "continuously building a better mix of businesses, creating breakthrough technologies and improving our customers' results is a proven formula for creating shareholder value" that the Pittsburgh-based maker of coatings, glass, fiber glass and chemicals has demonstrated since its 1883 founding.
In 2000, PPG earned $620 million, or $3.57 a share, on sales of $8.6 billion.
Referring to the current weak U.S. manufacturing economy, LeBoeuf said PPG generally emerges from economic downturns stronger and reaching new performance heights, with a 10.5 percent annual per-share earnings growth trend that roughly doubles per-share earnings peak to peak.
"I believe our strategic focus positions us to benefit very well from economic recovery whenever it occurs. We're hopeful that there is a meaningful comeback in the second half of the year, but we're not necessarily expecting one," LeBoeuf said. "We wouldn't be surprised if the second half is only slightly better. But if it happens sooner, we're prepared to take good advantage of it."
Improving its business mix has been the "primary source of growth" for PPG, LeBoeuf said, noting that coatings accounted for 54 percent of 2000 sales, compared with 36 percent of 1989 sales. PPG also increased its focus on less cyclical, higher-margin businesses such as automotive aftermarkets, sustaining margins in automotive original equipment businesses, and reducing reliance on cyclical markets like new construction, he added.
LeBoeuf said this was accomplished in part by divesting weak performers, but more significantly with 23 acquisitions since 1997. PPG is "making progress on integrating our acquisitions, which always present cost-saving opportunities," he said.
"It will take several years to get our acquisitions where we want them to be, which is exactly what we expected at the time we made those transactions. With the exception of just three, our acquisitions are in line with our expectations."
He also described several products introduced in recent years that are substantial successes, including Transitions variable tint plastic eyewear lenses and waterborne high solids automotive base coats. He saw "a bright future" for several others, including Sungate energy-conserving windshields, Bairocade gas-barrier packaging coatings, fast-curing UV Speed Prime automotive spot primers, and Trivex optical plastic lens material.
Some margins have declined slightly, LeBoeuf said, "because we've decided to seek growth in those businesses. Others have been hurt by the recent spike in natural gas prices ... We'll improve those margins by continuing our relentless search for ways to increase efficiency."
PPG's chairman said previously announced restructurings expected to result in a $50 million-$100 million first quarter charge are "examples of our ongoing cost management. Many of the projects included in this charge would have been implemented over the next several years. But with the sudden downturn in the U.S. economy, we are accelerating these activities because we believe we must take swift action."
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