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Will PPG Industries (PPG) Keep the Earnings Streak Alive?

Zacks Equity Research

Coatings giant PPG Industries (PPG) will report its second-quarter 2014 results ahead of the opening bell on Jul 17. Last quarter, the Pennsylvania-based company delivered a roughly 5.3% positive surprise on continued strength in its coatings business and its cost management initiatives.

PPG Industries has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of around 4.7%. Let’s see how things are shaping up for this announcement.

Factors to Consider

We expect PPG Industries to benefit from healthy momentum across aerospace and automotive OEM markets in the second quarter. Moreover, PPG Industries’ cost containment measures through its restructuring program should lend support to its earnings in the quarter.

Moreover, PPG Industries will continue to gain from cost synergies from acquisitions including Akzo Nobel’s (AKZOY) North American architectural coatings business which it bought last year. The acquisition has reinforced its branded paint product offerings and scale in the North American architectural paint market.

In addition, the recently announced buyout of Mexico’s leading paint company – Consorcio Comex S.A. de C.V. – for $2.3 billion is a significant move by PPG Industries as it will reinforce its architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio. The company expects the transaction to be immediately accretive to its earnings and deliver meaningful synergies.

However, some of the end markets such as non-residential construction and marine coatings remain somewhat sluggish. While the company is seeing modest improvements in Europe of late, it may continue to witness softness in construction markets in the region, especially in Western Europe.

Earnings Whispers

Our proven model shows that PPG Industries has the right combination of two key ingredients to beat earnings.

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction) for PPG Industries is +0.36% - the difference between the Most Accurate estimate of $2.80 and the Zacks Consensus Estimate of $2.79. This indicates a likely positive earnings surprise.

Zacks Rank #3 (Hold): PPG Industries’ Zacks Rank #3 increases the predictive power of its ESP.

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.   
Stocks That Warrant a Look

Here are some other chemical companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

LyondellBasell Industries NV (LYB) has earnings ESP of +3.13% and holds a Zacks Rank #2 (Buy). It is slated to report on Jul 25.

Celanese Corporation (CE) has earnings ESP of +1.63% and carries a Zacks Rank #3 (Hold). It is scheduled to report on Jul 17.

Read the Full Research Report on PPG
Read the Full Research Report on CE
Read the Full Research Report on LYB
Read the Full Research Report on AKZOY

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