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WIKI ANALYSIS
PPG Industries, Inc. (NYSE: PPG) makes "coatings" - materials that include simple house paint, but also higher-end chemicals used in the aerospace industry and (for example) Transitions® lenses which change from shaded to clear when the person wearing them is indoors.
Sales in the United States have decreased due in part to a weakened housing market. Fewer homes are being built, meaning there is a decreased demand for construction materials and thus lower sales for PPG. Also, increases in transportation costs due to inflation of fuel prices resulted in a $20 million increase in expenses.
Company Overview
Business and Financials
PPG's sales in 2009 totaled $12.2 billion compared to $15.8 billion in 2008, a decrease of 23%.[1] This was largely due to lower sales volumes in all segments reflecting the adverse impact of the global recession on demand, weaker foreign currency, and lower selling prices. Unsurprisingly, its net income fell from $538 million in 2008 to $426 million in 2009.
Business Segments
PPG breaks its operations into five segments: i) Performance Coatings, ii) Industrial Coatings, iii) Optical and Specialty Materials, iv) Commodity Chemicals, and v) Glass.
Performance Coatings
The Performance Coatings segment is composed of refinish, aerospace and architectural coatings businesses:
- The refinish coatings business produces coatings for automotive and fleet repair, as well as specialty coatings for signs. Its products are sold through distributors.
- The aerospace coatings business produces sealants, paint strippers and armor for commercial and military aircraft.
- Architectural coatings produces both protective and decorative coatings for buildings and bridges. This business owns 440 stores in North America and 80 in Australia.
The performance coatings segment sells its products worldwide either directly to consumers or through company-owned distributors.
The Industrial Coatings
This segment contains the automotive, industrial and packaging coatings businesses. These coatings are customized for each customer. The packaging businesses supplies product manufacturers with coatings and inks for consumer product containers. The performance and industrial coatings businesses share factories around the world. They have 31 facilities in North America (28 in the United States, 2 in Canada and 1 in Mexico).
Optical and Specialty Materials
The Optical and Specialty Materials segment primarily produce Transitions® lenses, sunlenses and optical materials. This segment also produces Teslin® synthetic printing sheets, which are used in waterproof labels, passports and ID's. This segment operates 13 plants worldwide.
The Commodity Chemicals
This segment sells its products directly to manufacturers in the chemical processing, rubber, paper and plastics industries. This segment operates 3 factories in the U.S., 1 in Canada and another in Taiwan.
PPG's Glass segment
This segment produces flat glass and fiberglass. Most of its products are sold directly to manufacturers and its main markets are construction, transportation and electronics. The Glass segment operates 10 factories around the world and partially owns operations in China, Japan, Taiwan and the United States.
Trends and Forces
PPG's earnings depend in part on the price of energy
Natural gas is PPG's primary energy source. Every $1.00 per million Btu increase in the price of natural gas leads to an increased cost of 60 to 70 million dollars per year. Natural gas prices can fluctuate wildly, as evidenced in 2008 when the price of natural gas doubled within 3 months, only to drop back down again in 2009.
Urbanization in China Means there is a Growing Market for PPG
Construction spending in China increased by 165%, and is increasing by an average of 25% each year.[2] According to the 11th Five Year period (2006-2010), construction plans estimate 2 billion new square meters each year. By 2010 China built an estimated 80 billion square meters of new housing.[3] Growing urbanization in China represents more growth opportunities for PPG.
Competition
Akzo Nobel N.V. (AKZOY) is the world's largest paint maker and one of the largest chemical manufacturers. Its business is divided into two segments: coatings and specialty chemicals.[4]
Nippon Sheet Glass produces glass and glazing systems in four areas: Building Products, Automotive Products, Information Technology Materials, and Glass Fiber. Its flat glass business composes 90% of annual sales.[5]
Sherwin-Williams Company (SHW) is a global producer of paints and coatings. It sells its products under brand names such as Dutch Boy®, Pratt & Lambert®, Martin-Senour®, Dupli-Color®, Krylon®, Thompson's® and Minwax®.[6]
References
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