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What's in the Cards for PPG Industries' (PPG) in Q3 Earnings?

Zacks Equity Research

PPG Industries Inc. PPG is set to release third-quarter 2019 results ahead of the bell on Oct 17. The paint giant’s results will likely reflect the benefits of its cost management initiatives, pricing actions and strategic acquisitions. However, unfavorable impacts of soft industrial demand, currency and raw materials cost inflation are likely to have affected its performance.

The company has outperformed the industry year to date. While PPG Industries’ shares gained around 14.7% over this period, the industry saw a decline of roughly 22.9%.


 

Let’s see how things are shaping up for this announcement.

What do the Estimates Say?

The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $3,909 million, suggesting an expected year-over-year rise of 2.4%.

For the company’s Industrial Coatings unit, net sales are expected to increase 1% year over year as the Zacks Consensus Estimate is $1,544 million for the third quarter. The same for the Performance Coatings segment is pegged at $2,336 million, indicating a 2.1% increase on a year-over-year comparison basis.

Factors at Play

PPG Industries faces challenges from sluggish global industrial activities. It witnessed weaker industrial production across several key regions through the first half of 2019. Soft industrial demand for several of the company’s businesses is likely to have impacted its third-quarter sales volumes.

Moreover, the company faces headwind from unfavorable currency translation. Currency swings reduced its sales by more than 3% or around $130 million in the second quarter. Some unfavorable currency impact is expected to get reflected in third-quarter results.

PPG Industries is also exposed to cost pressure associated with raw materials. It witnessed inflationary impacts through the first half. The company’s third-quarter results are expected to continue to reflect the impact of input cost inflation, albeit to a lesser extent than what was witnessed during the first half.

Nevertheless, the company is aggressively managing costs and is also implementing appropriate pricing actions. It remains focused on improving its cost structure and recovering margins through price increases amid an inflationary environment. The company is also taking steps to grow business inorganically through strategic acquisitions. Benefits of these initiatives might reflect on the company’s bottom line in the September quarter.

Earnings Whispers
 

Our proven model does not show that PPG Industries is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. This is not the case here as you will see below:
 
Earnings ESP: Earnings ESP for PPG Industries is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $1.62. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: PPG Industries carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.  

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Agnico Eagle Mines Limited AEM, scheduled to release earnings on Oct 23, has an Earnings ESP of +7.93% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold Corporation KGC, scheduled to release earnings on Nov 6, has an Earnings ESP of +25.93% and carries a Zacks Rank #1.

Barrick Gold Corporation GOLD, scheduled to release earnings on Nov 6, has an Earnings ESP of +1.9% and carries a Zacks Rank #2.

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