DOW JONES NEWSWIRES

PPG Industries Inc.'s (PPG) fourth-quarter net income plunged 65% despite improved sales and gross margins, as higher overhead costs pressured the bottom line.

Chairman and Chief Executive Charles E. Bunch said an early read on 2009 suggests the first quarter and possibly the first half of the year "is shaping up to be an even greater challenge than the fourth quarter" due to further weakening demand. He added the maker of paints, glass and chemicals is evaluating further cost reductions.

Shares fell 3.4% to $40.01 in premarket trading.

PPG reported fourth-quarter net income of $71 million, or 43 cents a share, compared with net income of $200 million, or $1.21 a share, a year earlier. PPG last month projected 35 cents to 45 cents, well below analysts' then-expectations.

Net sales climbed 2.7% to $3.19 billion. The latest estimate by analysts surveyed by Thomson Reuters was $3.52 billion.

Gross margin increased to 36.4% from 35%, but selling and other costs jumped 21%.

Performance-coatings earnings were flat though sales rose 8.3%. Industrial coatings posted a loss, as projected, as sales fell 18% and results were hurt by inflation and lower volumes.

Despite working to cut $100 million in annual costs amid ongoing restructuring, PPG has continued to struggle as industrial and automotive customers cut production and take longer to replenish inventories, reflecting weaker consumer demand and tight credit markets. Analysts have been concerned that PPG's exposures to the commercial construction market and the weak European housing market could pressure results.

Still, Credit Suisse sees the company benefitting from lower energy and raw material prices, which have retreated from last summer's spikes. These price shifts could offset some of the construction pressures.

-By Shirleen Dorman, Dow Jones Newswires; 201-938-2310; shirleen.dorman@dowjones.com

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