Pittsburgh’s PPG Aims High

PPG Architectural Finishes, the paint and coatings division of chemical, glass and plastics giant PPG Industries, has long lagged behind its larger competitors—Sherwin-Williams, Benjamin Moore, ICI, Dunn-Edwards and Kelly-Moore.

But following the sale announced in September of two of PPG’s fine chemicals businesses to an Italian firm, PPG CEO Charles Bunch said the company plans to focus on becoming the “leading coatings and specialty products and services company.”

The numbers certainly support his goal. So does the company’s slew of recent international acquisitions and new product offerings under the PPG brands, which include Pittsburgh Paints, Olympic, Monarch, Porter Paints and Manor Hill.

The company’s retail store base has shown rapid growth in the past 10 years, going from 126 locations in 1998, to 315 in 2004, to 448 in 2006, according to HCN’s Top 500 Scoreboard of home channel retailers.

PPG Architectural Finishes ranks 45 on that list, moving up from 53 last year. Sales in the coatings business rose to $240 million, again showing wide gains over previous years—$155 million in 1998, $194 million in 2004 and $200 million last year.

Including all of its divisions, PPG’s second-quarter sales passed the $3 billion mark, making it the “17th consecutive quarter in which we delivered a year-over-year sales record,” according to William Hernandez, senior vp and CFO, in the company’s second-quarter conference call.

The record performance “was led by our strongest operating margin businesses,” particularly in architectural coatings, which saw sales rise 31 percent, Hernandez said.

The company saw much of its coatings growth through international sales. Still, sales at coatings stores also contributed to growth of about 2 percent, in spite of a downturn in the residential construction market. In this way, PPG has shown the strength inherent in a diversified customer base—while housing starts declined 20 percent, Hernandez said, commercial construction grew 8 percent. PPG’s coatings business breaks down to a sales base of approximately 10 percent residential consumers, 80 percent professionals and 10 percent to industrial and commercial customers.

“We have stated continuously that these businesses have large commercial construction content, and our performance certainly reflects that fact,” he said.

Additionally, PPG has made acquisitions worldwide in the past year. Most recently, the company acquired Barloworld Coatings Australia, which added 85 retail locations as well as the consumer paint brands Taubmans, Bristol and White Knight.

International acquisitions have been important, Hernandez said, in offsetting slower growth in North America. “We’ve experienced lower volumes in our professional channels, both in our stores and distributors,” he said. “We anticipate low growth rates in North America, sustained growth in Europe and continued high growth in China and other emerging regions.”

Other acquisitions in the past two years have included assets of Shanghai Sunpool Building Material’s paint brands O’need and Kaleidoscope, California’s Spectra-Tone paint and Australia’s Protec coatings business.

Those acquisitions “not only are aiding our sales growth but also delivered double-digit operating margins,” said Bunch.

The company will release third-quarter earnings on Oct. 18. While as a whole the company recorded $3.2 billion in sales in the second quarter—up 14.2 percent from $2.8 billion last year, earnings fell last quarter to $249 million from $280 million in the previous year.

PPG has also announced plans to divest its auto glass business—at the same time, the company has launched new products with an emphasis on consumer sales, including ultra low VOC paints and high-end interior products. New commercials promoting the company’s Olympic brand paint, which is sold in Lowe’s stores, debuted this summer.

Like many home improvement companies, PPG does not anticipate a housing market recovery until “at least early 2008.” But with a coatings business so entrenched in the commercial and industrial market, it would appear the company is well positioned to grow in tough times.