PPG Industries Inc. PPG has a diversified business, in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets.
The company is gaining from cost cutting and restructuring actions. It is also committed to deploy cash on acquisitions and share repurchases. Moreover, acquisitions are likely to contribute to sales.
Shares of PPG Industries, which currently carries a Zacks Rank #3 (Hold), have lost 3.8% in the past six months compared with the industry’s 18% decline.
The company is executing aggressive cost cutting and restructuring strategies. Cost savings from the restructuring efforts are likely to make a positive impact on the company.
PPG Industries has announced significant restructuring actions to improve cost structure. These are mostly focused on regions and end-use markets with the weakest business conditions. The restructuring actions delivered savings of $20 million in the third quarter of 2018 and the company expects to achieve additional savings of more than $20 million in the fourth quarter.
PPG Industries is also undertaking steps to grow business inorganically. The acquisition of the North American architectural coatings business of AkzoNobel expanded scale in the North American architectural paint market. It expects acquisitions (made during the 2017-2018 period) to contribute sales of roughly $125 million in 2018.
PPG Industries is also committed to boost shareholders’ returns with cash deployment. It expects to deploy roughly $1 billion in the fourth quarter of 2018 on acquisitions and share repurchases. The company has an impressive record of returning cash to shareholders through dividends and share buybacks. It bought back shares worth $1.3 billion during the first nine months of 2018 and raised quarterly dividend by 7%.
However, PPG Industries faces headwinds from raw materials cost inflation and unfavorable currency translation.
The company witnessed considerable raw material cost inflation and higher logistics costs in the third quarter, which includes the effects of increasing oil and higher epoxy resin prices. It expects raw material inflation to persist in the fourth quarter of 2018, which is likely to affect margins.
Moreover, currency swings reduced the company’s sales by around $80 million in the third quarter. The company expects currency translation to negatively impact sales in the Performance Coatings unit by $30-$40 million in the fourth quarter. Moreover, it expects an unfavorable currency impact of $15-$20 million on sales of the Industrial Coatings division. Overall, it expects currency-related impact of $50-$60 million on sales in the fourth quarter.
PPG Industries, Inc. Price and Consensus
PPG Industries, Inc. Price and Consensus | PPG Industries, Inc. Quote
Stocks to Consider
A few better-ranked stocks in the basic materials space are Verso Corporation VRS and Ingevity Corporation NGVT, both sporting a Zacks Rank #1 (Strong Buy); along with Cameco Corporation CCJ, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Verso has an expected earnings growth rate of 63.5% for 2019. The company’s shares have rallied 34.4% in the past year.
Ingevity has an expected earnings growth rate of 21.5% for 2019. The company’s shares have gained 15.4% in the past year.
Cameco has an expected earnings growth rate of 20% for 2019. Its shares have moved up 21% in a year’s time.
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