PPG Industries planning to keep cash elevated due to lower demand

By Jennifer Lanning Drey

Portland, Ore., July 16 - PPG Industries Inc. increased its cash balance to more than $1 billion in the second quarter and intends to maintain an elevated level of cash given the depressed demand seen in most of its markets during the period, William Hernandez, chief financial officer of PPG, said Thursday during the company's quarterly earnings conference call.

"Given today's economic times, we intend to continue our focus on managing our cash and will likely maintain a larger-than-normal cash balance for the financial flexibility it provides in the current environment," Hernandez said.

PPG generated nearly $400 million of cash from operations in the quarter ended June 30, representing a 25% improvement over the comparable prior-year period due to cost management and stronger working capital results.

"We are pleased with our cash performance and growth year over year, particularly in light of today's economy," Hernandez said.

The company's quarter-end cash balance included $235 million that was drawn under a $400 million multi-year term loan in June, he said.

PPG immediately used $165 million of the proceeds to repay existing debt and the company intends to use the remainder of the proceeds for similar purposes during the third quarter, Hernandez said.

In addition, based on continued strong cash generation projected in the second half of the year, PPG expects to pay down "a good portion" of its $240 million of outstanding commercial paper, he said.

The company expects full-year capital spending to be approximately $200 million. The figure excludes acquisitions, which the company will continue to approach with caution, he said.

Revenues down 30%

PPG posted second-quarter sales of $3.1 billion, down 30% versus the same period in 2008 including a 6% decline resulting from a business divestiture in 2008. Net income was $146 million in the second quarter, versus net income of $250 million in the comparable prior-year period.

Company chief executive officer Charles Bunch said demand remained depressed during the period as compared to prior years but showed mild improvement over the first quarter.

The company believes most of its markets have now stabilized and, excluding the impacts of a normal seasonal drop, expects overall conditions to again improve slightly in the third quarter, he said.

The specialty coatings company is based in Pittsburgh.

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