We have retained our Neutral recommendation on
) following its mixed first-quarter 2013 results. We remain on
the sidelines factoring in the lingering weakness in the European
Why Kept at Neutral?
The coatings giant's profit for the quarter, reported on Apr 18,
climbed manifold on strength across automotive OEM and aerospace
markets. A one-time gain on sale of PPG Industries' commodity
chemicals business boosted the bottom line.
Adjusted earnings of $1.58 per share beat the Zacks Consensus
Estimate of $1.56. Sales were essentially flat year over year at
$3,331 million, missing the Zacks Consensus Estimate of $3,424
million. Strong momentum across North America and Asia was
somewhat masked by sustained weakness in Europe.
PPG Industries has a diversified business, both in terms of
products offered and geographical presence. It has a leading
position in several paints and coatings end markets.
PPG Industries is taking steps to grow its business inorganically
by making a number of acquisitions. It recently closed the
acquisition of the North American architectural coatings business
of Dutch paints company
) for $1.05 billion. The acquisition expanded PPG Industries'
branded paint product offerings and scale in the North American
architectural paint market.
PPG Industries sees mixed economic trends in 2013 with continued
strength in North America, improvements in Asia and sustained
weakness in Europe. The company is pursuing restructuring of its
European operation, which is expected to fetch meaningful cost
savings this year. PPG Industries also has an impressive record
of returning cash to shareholders through dividends and share
However, PPG Industries is expected to continue to face
macroeconomic challenges going ahead. While the company had a
decent first quarter, it expects continued softness in Europe and
foresees a challenging demand environment in the region.
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Moreover, raw material inflation and currency headwinds remain
concerns for PPG Industries. Some of the key end markets such as
non-residential construction, architectural coatings and
electronics also remain sluggish.
PPG Industries currently holds a short-term Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the chemical industry that are worth
Eastman Chemical Co.
LyondellBasell Industries NV
) with both retaining a Zacks Rank #2 (Buy).