Downtown-based PPG Industries is sitting on about $2 billion in cash as it goes into the fourth quarter, which is usually a cash-generating quarter, said Chairman and CEO Charles Bunch, and how the coatings and specialty materials company plans to use that cash was a popular topic of discussion between Bunch and industry analysts Thursday afternoon.
In addition to the cash on hand, Bunch added that the $900 million related to PPG's spin-off and merger deal with Georgia Gulf Corp. is expected to come in over the next few months, and since the company needs between $400 million to $500 million to run the company, they expect to have "in excess of $2 billion" that can either be put to share buy-back or acquisitions. However, with the pending Georgia Gulf deal, the company is out of the buy-back market until its completion.
"We plan a modest share buy back at the conclusion (of the Gulf deal), but we are keeping some of our balance sheet strength, let's call it, as we evaluate acquisition opportunities," Bunch told analysts on a conference call to discuss third quarter earnings. "As we go through 2013 and beyond, if we can't find attractive acquisitions to deploy this excess cash, we will become more aggressive in share buy backs."
He noted that much of the company's cash is in North America.
PPG (NYSE: PPG) has been talking about seeking acquisitions for the past 18 months, Bunch said, as the company came out of its "hunkered down" mentality of 2008 and 2009. "As we have come out (of the recession) in 2010 and beyond, we have been more optimistic and talking about acquisitions, (but) we haven't made as many," he said, highlighting some notable deals such as Bairun in 2010 and Dyrup and Colpisa in 2011. Just this week, the company announced its latest deal to acquire New York-based Spraylat.
Looking at the current challenging macroeconomic climate, with growth slowing in emerging markets and the European debt crisis taking longer than anticipated to solve, Bunch hinted that the M&A opportunities might be brightening.
"There is more realism on the part of many of the coatings companies or companies more broadly that this reality may be with us for a year or two and it's not going to be easy to be successful," he said. "There is better dialogue between potential buyers and sellers (now)."
Other points of interest from the call:
The company is seeing its titanium dioxide raw material costs stabilize, though they are still higher in the third quarter year-over-year. The company remains on track to continue to reduce its titanium dioxide use between 4 percent and 6 percent for the full year. For the first three quarters, the reduction is at about 3 percent, Bunch said.
The industrial coatings segment benefited from strong automotive original equipment manufacturer activity in North America, and PPG expects that to continue. Even with the weakness in the European automotive market, PPG is well positioned with European automakers and is benefiting from this year's restructuring efforts.
The company is also benefiting from investments to localize production, Bunch said. For example, by building a resin facility in China, PPG was able to meet local demand and avoid tariffs, duties and freight costs.
In a separate statement issued Thursday afternoon, the company announced that John Faraci, chairman and CEO of International Paper Co. (NYSE: IP), was named to the PPG Board of Directors. International Paper, a paper and packaging maker, is based in Memphis, Tenn., and has plants in North America, Europe, Latin America, Asia and North Africa.
"John brings a breadth of global business knowledge and leadership that will provide PPG with valuable perspective and guidance as we continue to grow our operations around the world," Bunch said in a prepared statement.
