PPG Industries: Earnings Preview

Apr.18.12 | About: PPG Industries, (PPG)

PPG Industries (NYSE:PPG), a global supplier of protective and decorative coatings, is scheduled to report its first-quarter 2012 results before the opening gong on Thursday, April 19. The current Zacks Consensus Estimate for the quarter is $1.79 per share, representing an estimated year-over-year growth of 27.62%.

The Pennsylvania-based company recently unfurled its guidance for the first quarter. The company expects adjusted earnings to be in the band of $1.75 to $1.80 a share. After including restructuring expenses and costs associated with acquisition and environmental remediation, it expects earnings to be in the range of 2 to 7 cents per share.

PPG industries expect to incur pretax restructuring charge of $208 million in the quarter. The company said that the restructuring efforts are a part of its strategy to be at par with its competitors which includes the DuPont Performance Coatings segment of EI DuPont de Nemours & Co. (NYSE:DD) and BASF Coatings AG.

With respect to earnings surprises, PPG Industries beat the Zacks Consensus Estimates in the trailing four quarters and we expect this impressive trend to continue into the first quarter. The company has delivered an average positive earnings surprise of 3.14% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

Fourth Quarter Revisited

PPG Industries' fourth quarter earnings of $1.39 a share exceeded the Zacks Consensus Estimate of $1.28. The company delivered record earnings in the quarter driven by higher revenues and cost cutting initiatives.

Revenues went up 4% year over year to $3.52 billion, squeaking past the Zacks Consensus Estimate. The company saw growth in each of its coatings businesses in the quarter.

Revenues in the Performance Coatings segment rose 3% year over year while the Industrial Coatings business registered a growth of 7%. Sales from the Architectural Coatings division climbed 5% in the quarter. Optical and Specialty Materials revenues fell 3%, hit by supply outage resulting from floods in Thailand. Revenues from the Commodity Chemicals segment edged up 0.5% while sales from the Glass unit fell modestly in the quarter.

Estimate Revisions Trend


Estimates for the March quarter are clearly on the positive side reflecting a comprehensive directional agreement. Out of 9 analysts covering the stock, 8 have raised their forecasts over the past month with none moving in the opposite direction. Over the past week, none have moved in the either direction.

For fiscal 2012, estimates reflects strong bullish sentiment with 10 analysts (out of 14) having hiked their estimates over the last 30 days without any reverse movements. Over the past 7 days, 2 analysts have lifted their forecasts with none lowering their forecasts.


Given the sheer directional consensus, estimate for the first quarter has surged by 36 cents over the past month while remaining stationary (at $1.79 a share) over the past week. For fiscal 2012, estimate has shot up by 8 cents and 39 cents over the last 7 and 30 days, respectively. The current Zacks Consensus Estimate for fiscal 2012 is $7.68, representing an estimated year-over-year growth of 13.05%.

Our View

PPG Industries' Performance Coatings and Specialty products businesses have demonstrated sound growth over the past few quarters and we expect this trend to continue in the first quarter. Better pricing and lower costs of natural gas are also expected to aid to the results.

While the company anticipates the European market to remain challenging, it expects the U.S. economy to recover moderately. It also expects emerging markets to witness higher growth rates compared with its developed markets in the first quarter.

PPG Industries has a strong cash position, and continues to utilize cash on earnings growth initiatives. Moreover, the company has been returning cash to its shareholders in the form of uninterrupted dividend pay outs. It also expects to deploy its strong cash position for sustained growth.

However, raw material costs have been a matter of concern for the company's earnings. Although raw material costs have shown a moderating trend, the price of the company's primary raw material TiO2 has been escalating. We also believe that PPG's significant presence in the U.S. construction, European architectural and global auto, appliance and industrial coating markets exposes it to substantial headwinds.

We currently have a long-term Neutral recommendation on PPG Industries. The stock currently holds a Zacks #1 Rank, which translates into a short-term "Strong Buy" rating.