Coatings, chemical and glass maker PPG Industries (NYSE:PPG) posted a steep rise in earnings on record sales for its fourth quarter. The results were driven by strength in the coatings division as well as emerging market growth, along with the recovering economy.

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Segment Stars
Industrial coatings increased sales by 10%, with a boost from the automotive market and strong Asian market sales. Segment earnings fell, however, as raw material costs offset revenue. Performance coatings revenue rose by 7%, while segment earnings increased 14%, as the company lowered these costs. Commodity chemicals and the glass segment were strong performers.

Financial Results
Reported net income for the quarter reached $205 million or $1.24 a share, compared to last year's fourth quarter of $142 million or 85 cents a share. Sales were $3.4 billion compared to $3.1 billion in the fourth quarter a year ago. CEO Charles Bunch cited the improving economy. He indicated the company is "beginning to show the full power of its earnings," despite volumes which are still below pre-recession levels.

Sales increased for the full year from $12.2 billion to $13.4 billion. Reported net income for 2010 was $769 million or $4.63 a share, compared to $336 million or $2.03 per share for 2009. Selling prices increased each quarter, while emerging markets posted double-digit growth.

Specialty Chemicals Group
Specialty chemical companies have mostly done well this year, though there were a couple that had problems. RPM International (NYSE:RPM) had lower earnings in its recently reported second quarter in part due to higher costs. Although RPM's results suffered from its consumer division, industrial chemical use continues to pick up. HB Fuller (NYSE:FUL) had its profits dampened by one time events but showed strong revenue increases.

PPG was joined in its stellar results by Ferro Corp. (NYSE:FOE), which does a lot of work in solar, electronics and household furnishings. Ferro experienced a dramatic turnaround in its earnings for 2010. OM Group (NYSE:OMG), which has seen strong growth in business this year, sees a continuation of this for 2011. Add Poly One (NYSE:POL) to this growth group. PPG and the other specialty chemical companies may do business in a mundane industry, but the strength the group is showing confirms the direction of the industrial economic recovery.

Raw Material Costs, Plus China Worries
Raw material costs, which rose for PPG, are a concern of the chemical companies. This is the beginning of that cycle ramping up. Increase of sales and earnings, though, are expected to continue along with this. Not just for the big names, such as Dow Chemical (NYSE:DOW), DuPont (NYSE:DD) and PPG, but for the smaller specialty names also.

What could derail this acceleration? If China slows down its economy, that would have an impact on emerging market sales, a strength recently for PPG. Yet PPG's business is strong enough globally, along with the developed world's gradual return to increased industrial productivity, to overcome this. The outlook on the Street is positive for the sector and PPG for 2011.

The Bottom Line
The stock has had a long run up, so the outlook and the recent results have mostly been priced in. The underlying business should have room to run, with not only pricing power in the near term, but the prospect of recapturing and eventually exceeding pre-recession sales levels. PPG, which also pays a solid dividend, has fundamentals that look good so investors should keep the stock in mind. (For a related reading, see How Dow Chemical Defeated An International Monopoly.)

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