PPG Reports Record Sales and Earnings
PPG Industries reported record sales for the fourth quarter of 1996, while earnings per share equalled the 1995 record. Full-year sales and earnings were also records, excluding the effect of a 1995 gain from settlement of a glass technology dispute.
"All three business segments had record fourth quarter sales, their second consecutive quarterly high," said Jerry E. Dempsey, board chairman and chief executive officer. "That performance, and the record-matching per-share earnings, were achieved despite lower North American auto production, ongoing commodity chemicals price weakening, a dramatic increase in natural gas costs, and continued weakness in European economies."
Fourth quarter net income was $152.1 million, or 83 cents a share, on sales of $1.8 billion, compared with net income in the 1995 quarter of $161.2 million, or 83 cents a share, on sales of $1.7 billion.
Full-year 1996 net income was $744.0 million, or $3.96 per share, on sales of $7.2 billion. In 1995, net income was $767.6 million, or $3.80 per share - including a $24.2 million after-tax gain, or 12 cents a share, from settlement of the glass technology dispute with Pilkington PLC; sales were $7.1 billion.
Also, PPG’s board of directors raised the quarterly dividend on the company’s shares to 33 cents from 32 cents a share, payable March 12 to shareholders of record Feb. 18.
"Our North American businesses did well in the final quarter of the year," Dempsey said, "with manufacturing efficiencies contributing to overall earnings performance. On the other hand, the climb in natural gas prices meant higher fuel costs to generate electricity for commodity chemicals production and operate glass and fiberglass melting furnaces."
"We remain cautiously optimistic that the decline in Europe’s economies may have bottomed late last year," he added.
PPG’s coatings and resins segment achieved record sales and second-highest operating earnings for a fourth quarter despite weakness in key European markets and a decline in North American auto production. Automotive refinishes and industrial coatings had a strong quarter. Raw materials costs improved from a year earlier, and manufacturing efficiencies also had a favorable effect on earnings.
Snap-On Acquires 50% of Mitchell Mechanical Business - Thomson Retains Ownership of Collision Business
Snap-On and the Thomson Corporation announced January 6 that Snap-On has acquired a 50 percent stake in the Mitchell Repair Information Divsion- that develops mechanical repair data and information systems. The jointly-owned company will operate as a new entity under the name Mitchell Repair Information Company. Terms of the transaction were not disclosed.
The arrangement will enable Snap-On to offer a complete package of integrated information and business services to mechanical repairers. The new company will maintain the Mitchell brand and distribution channel, and also develop private-branded products for Snap-On’s dealer channel.
The agreement also provides Snap-On with access to Mitchell’s vehicle repair database. According to Branko Beronja, senior vice-president for North Amercian Diagnostics at Snap-On, "We will now be able to integrate vehicle repair information into every diagnostic platform we produce." Beronga continues, "Information is a critical part of automobile service today. By integrating it with our diagnostic capabilities, we can create products that increase customer efficiency and profitability. We will also have the ability to reformat information to fit specific customer needs."
Under terms of the agreement, Thomson will retain full ownership of Mitchell’s Collision information business- both print and electronic estimating and insurance claims processing.
ADP has announced that it will contest a complaint filed by the Federal Trade Commission (FTC) on November 14 in regard to ADP’s acquisition of AutoInfo. The FTC announced that it would seek an order requiring that ADP Parts Services "divest assets in hopes of restoring competition to the salvage information management industry." ADP will continue attempts to rach an amicable agreement with the FTC, while contesting the FTC’s charges. (Editor’s Note: See the Industry Update section of the December, 1996 issue of INSIGHT for the detail on the FTC complaint.)
According to Marc Herman, senior vice-president of ADP Parts Services, "We believe that the acquisition and integration of AutoInfo has aided in driving inefficiencies out of the marketplace; inefficiencies such as duplicate interchanges, multiple locator databases and proprietary communication networks. Divestiture, at this point, would be a step backwards for the industry."
The Valspar Corporation announced January 22 that it has agreed to purchase Sureguard, Inc., an industrial coatings manufacturer with 1996 revenues of $10 million. Terms of the transaction, which is expected to be completed by the end of January, were not disclosed.
Sureguard’s headquarters, manufacturing and research operations are located in a new facility in Grand Prairie, Texas. The company’s business, which consists primarily of transportation, mirror-backing and photographic coatings, is expected to be integrated with Valspar’s Industrial and Refinish business groups.
Travelers/Aetna Property Casualty Reports Q4 Earnings
Travelers/Aetna Property Casualty reported core operating earnings of $261.6 million, or $0.65 per share, for the quarter ended December 31, 1996. Core earnings exclude a net acquisition related charge of $31.5 million (after tax) related to the acquisition of the property-casualty operations of Aetna Inc. (Aetna Casualty and Surety) and investment portfolio gains of $31.6 million (after tax). Net income for the quarter was $261.7 million, or $0.65 per share. Per share results are based on 399.8 million shares outstanding during the period.
For the full year 1996, core operating earnings reached $801.5 million, which consist of $720.7 million from the combined operations for the last three quarters and $80.8 million from Travelers only for the first quarter. On a per share basis, core earnings were $2.17. Net income was $390.5 million, or $1.05 per share, giving effect to full year net acquisition-related charges of $422.5 million ($391.0 million and $31.5 million in the second and fourth quarters, respectively), and investment portfolio gains of $11.5 million. Per share results are based on 367.1 million shares outstanding during the year.
Earnings for the quarter and year are not comparable to those of 1995 because the results of Aetna Casualty and Surety are included from April 2, 1996 only.
"It’s been a quarter and a year of good progress and strong earnings," said Robert I. Lipp, Chairman and Chief Executive Officer. "For the quarter, earnings continued to benefit from strong net investment income, expense savings, which continue ahead of schedule, and an excellent showing by Personal Lines.
"In Commercial Lines, the impact on earnings of reduced volume from selective underwriting and the highly competitive marketplace has been offset by greater cost efficiencies in our operations and in competitive workers’ compensation managed care delivery programs. At the same time, we’ve achieved strong customer retention rates across the agency-based lines of business.
"Personal Lines results have shown good growth throughout the year," said Lipp. "We’ve continued our growth in target markets, reduced exposure in catastrophe prone areas, and have seen continuing positive reserve development in the personal automobile business. Today, our independent agency base is stronger than ever, and we are making good progress in developing new distribution channels for our products."
Combined net written premiums for the quarter were $1.801 billion compared to $1.865 billion for the corresponding 1995 period. Combined net written premiums for the year were $7.343 billion compared to $7.687 billion in 1995.
Integon Corporation reported results on January 22 for the fourth quarter and year ended December 31, 1996.
For the year ended December 31, 1996, operating losses totalled $1.6 million, compared to operating earnings of $30.3 million for the year ended December 31, 1995. Operating losses per share for the period were 45 cents, compared to operating earnings per share of $1.54 for the 1995 period. Net income for the period was $170,000, compared to $34.0 million for the full year 1995. After-tax net realized investment gains in 1996 were $1.8 million compared to $6.3 million in 1995. Additionally, an extraordinary after-tax loss of $2.6 million, primarily due to the settlement of litigation, is reflected in the 1995 results.
Revenues for the year ended December 31, 1996 totaled $783.4 million, compared to $627.5 million in 1995. Net premiums written were $798.0 million for 1996 and $620.4 million for 1995, an increase of 28.6 percent.
Commenting on the company’s performance, Chairman and Chief Executive Officer John C Head III said, "We are extremely disappointed with 1996 and especially the fourth quarter results. However, we took, are taking, and will take actions that should result in improved performance. Although we took rate increases throughout 1996, hindsight has shown that those increases were inadequate in many of our marketing territories. We started taking more aggressive rate increases in October 1996, as previously reported, and by the end of March 1997 we will have taken rate increases in states representing more than 95 percent of the company’s nonstandard auto premium volume. Prices will go up. Other actions that have been taken include increasing minimum down payments and implementing underwriting restrictions. We expect these actions to have the impact of both slowing premium growth and improving profitability. In fact, growth in net premiums written has already slowed, as evidenced by an 18 percent increase in the fourth quarter 1996 compared to the same period in 1995, down significantly from the 31 percent growth rate reported for the third quarter 1996. Furthermore, the combined operating ratio for December was lower than quarter-to-date through November."
During the fourth quarter 1996, the company increased loss reserves by $12.5 million related to adverse development on liability claims, primarily for the 1996 accident year and wrote off $3.5 million of deferred policy acquisition costs. Additionally, the reserve for bad debts was increased $2.0 million before taxes to recognize a pattern of higher write offs in recent months.
According to Head, "Although these adjustments were painful to make, they will lessen the possibility of 1997 being negatively impacted by business written in 1996. We under reserved and were under priced. We dealt with the reserves and we are now dealing with the pricing."
"Our business strategy has not changed and we plan to execute the strategy with a heightened sense of urgency. We will continue our investment in technology to regain our position of leadership among our competitors in the use of automation. Our focus in 1997 will be on earnings, not growth. Over the long term, Integon’s goal is to grow faster than the nonstandard auto industry and report a combined ratio of below 96 percent," Head said.
Integon Corporation, through its wholly owned property and casualty insurance subsidiaries, specializes in the underwriting and marketing of nonstandard and other specialty automobile insurance products to individuals in 29 states.
GM OnStar Integrates Electronics with GPS and Cellular
Lost and need directions to your hotel? Have your locked your keys in your car? Had an accident and need a tow truck? GM is taking the high-tech route to provide 1997 Cadillac owners with help.
GM has introduced a new mobile communications system that integrates on-board vehicle systems with Global Positioning System (GPS) satellite technology and a cellular phone to provide vehicle owners with advanced communications and support services.
Introduced exclusively on 1997 Cadillacs, the system connects the vehicle and driver with GM’s OnStar center where advisors provide real-time assistance. Features of the system include:
- Automatic notification of air bag deployment
- Emergency services
- Theft detection notification and stolen vehicle tracking
- Remote door lock/unlock
- Roadside assistance
- Route support
- OnStar convenience services
- Hands-free, voice-activated cell phone.
The automatic air bag notification was put to a test last June during a Cadillac media event. A driver in a compact pickup passed a traffic accident and picked up his cell phone to call for help. The driver then turned and pulled directly in front of a 1997 OnStar equipped Cadillac DeVille driven by a journalist with an OnStar employee as a passenger and the vehicles collided.
The DeVille’s air bags deployed, sending a signal to the OnStar Center. Emergency medical crews were notified and given the exact location of the accident. The pickup truck driver was badly hurt and airlifted to the nearest hospital. The journalist was shaken, but not injured.
Features such as roadside assistance, towing and travel route support are aided by the GPS system built into OnStar. Drivers contact the OnStar center through the cell phone. Advisors at the center can then place the vehicle on a digital map and find the closest support services or route information.
The theft detection and tracking features are also aided by GPS. If the security systems are tampered with, a signal is sent to the center. The vehicle can then be tracked, and information passed to police.
OnStar’s suggested retail price is $895 plus dealer installation costs and a monthly subscription fee of $22.50. The user must also maintain a subscription for the cell phone through a local provider.
While the price may seem high, Cadillac owners are buying. At press time, roughly 2500 1997 Cadillacs have been equipped with OnStar, with sales currently running at about 150 units per week. Offered exclusively on Cadillac models in 1997, GM plans to move the technology to other brands in the future.
What impact will systems such as GM’s OnStar have on the collision repair industry. Little in the near term, but long term they can benefit overall service especially on electronics. Or, imagine having a vehicle automatically schedule maintenance based upon the miles being driven. Interesting to say the least.
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