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Why Is PPG Industries (PPG) Down 5.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for PPG Industries (PPG). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PPG Industries due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

PPG Industries’ Q2 Earnings Beat, Sales Trail Estimates

PPG Industries logged net income from continuing operations of $270 million or $1.13 per share in second-quarter 2019, down around 27% from $371 million or $1.51 per share a year ago.

Barring one-time items, adjusted earnings per share were $1.85, down from $1.90 a year ago. It, however, beat the Zacks Consensus Estimate of $1.83.

Net sales were down around 3% year over year to $4,024 million in the reported quarter. The figure fell shy of the Zacks Consensus Estimate of $4,094.4 million. Unfavorable currency swings affected net sales by more than 3% while acquisition-related sales, net of divestitures, contributed more than 2% to sales growth.

The company gained from strong growth in several of its businesses including aerospace and protective and marine coatings in the quarter.

Segment Highlights

Performance Coatings: Net sales in the segment were $2.4 billion in the second quarter, down around 3% year over year. Sales volume in the segment declined around 3%, which lowered sales by more than 2%. Unfavorable foreign currency translation reduced net sales by roughly 3%.

Segment income fell roughly 1% year over year to $425 million, affected by unfavorable currency impact. Higher selling prices and the company’s cost management and restructuring initiatives were offset by reduced sales volumes.

Industrial Coatings: Sales in the segment totaled $1.6 billion, down roughly 2% from the prior-year quarter’s figure. Increased selling prices of 2% and acquisition-related sales of roughly 5% were, in part, masked by lower sales volumes of 5%. Unfavorable foreign currency translation lowered sales by roughly 4% on a year-over-year basis.

Net income for the segment was $235 million, up around 5% year over year. Higher selling prices and benefits of cost management actions were partly offset by reduced sales volumes. Unfavorable currency impact was around $10 million.

Financial Position

PPG Industries ended the quarter with cash and cash equivalents of $963 million, down around 6% year over year. Long-term debt fell around 4% year over year to $4,845 million.

Outlook

PPG Industries stated that it expects industry demand for several of its businesses to remain sluggish in the third quarter. The company remains focused on recovering operating margins and expects the momentum to continue as it works with its customers and suppliers to further offset the impact of raw material cost inflation.

The company expects third-quarter earnings in the range of $1.57-$1.67 per share. It also reaffirmed 2019 adjusted earnings per share growth of 7-10% and envisions sales growth of a low-single-digit percentage for the full year, both excluding currency translation impacts.

The company continues to aggressively manage costs amid a challenging business environment. It delivered roughly $20 million of cost savings in the second quarter. PPG Industries also remains committed in its cash deployment with a focus on shareholder value creation over the long term.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, PPG Industries has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

PPG Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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