PPG Industries Inc. (PPG), a major global supplier of protective and decorative coatings, is projecting earnings (excluding non-recurring items) of $1.40 to $1.50 per share in the second quarter of 2010, higher than the 91 cents reported in the same quarter of 2009.
For the second quarter, the Zacks Consensus Estimate is $1.47 per share. In the first quarter of 2010, the company had recorded earnings of 70 cents per share, higher than the Zacks Consensus Estimate of 63 cents. PPG has outperformed the Zacks Consensus Estimate in each of the last four quarters, which is reflected in the average surprise of 14.08%.
PPG expects improving demand (especially in the Industrial Coatings, Optical and Specialty Materials, Commodity Chemicals and Glass segments) to bolster earnings in the upcoming quarter. PPG's Industrial Coatings segment has reported its highest first quarter earnings in the last 10 years. The company's business in the Performance Coatings segment is also improving with the recovering automotive refinish and aerospace sectors, its key end-markets. PPG also expects strong demand coupled with lower energy costs as well as improving selling prices to drive earnings in the Commodity Chemicals segment. However, the Architectural Coatings–EMEA segment is likely to continue to report modest growth.
On a regional basis, PPG expects higher industrial demand to offset the sluggish growth in the mature markets of North America and Europe due to a weak demand in the construction sector. The company expects strong demand in the emerging markets to accelerate earnings growth in the near future.
The global recession has adversely affected many of the Pennsylvania-based PPG's end-use markets. However, the company has responded to the global recession with aggressive restructuring and cost reduction measures, while increasing its focus on cash flows. PPG has a strong cash position, with cash and cash equivalents of $689 million as of March 31, 2010. The company has been using its cash strategically and has already bought back more than 1.5 million shares to date. PPG has about 4.5 million shares left under its current repurchase authorization.
PPG's earnings are recovering and its strong cash position provides the financial flexibility to support earnings growth. Demand improvements are likely to be led by automotive production in 2010. PPG will announce final second quarter 2010 financial results on July 15, 2010. Until then, we maintain our Neutral recommendation on PPG.