PPG Beats Estimates - Analyst Blog


PPG Industries Inc. ( PPG ) posted net income of $216 million or $1.39 per share for the fourth quarter of 2011 compared with $205 million or $1.24 per share in the year-ago quarter. The results substantially exceeded the Zacks Consensus Estimate of $1.28 per share.

For the fiscal year 2011, PPG's net income was $1.1 billion, or $6.87 per share, exceeding the Zacks Consensus Estimate of $6.78 per share.

The company delivered record earnings in the quarter driven by higher revenues and cost cutting strategies.

Revenues in the quarter went up 4% to $3.52 billion, slightly exceeding the Zacks Consensus Estimate of $3.50 billion. For full-year 2011, revenues increased 11% to $14.89 billion from the year-ago level.

Segment Details

Revenues in the Performance Coatings segment were $1.1 billion in the fourth quarter, an increase of $34 million from year-ago quarter. The segment income decreased by $30 million over the prior-year quarter to $140 million, driven by lower activity levels and inflationary pressures. Disappointing results in the marine and architectural coatings segments also contributed to the decrease in income. PPG increased pricing in each segment.                           

Segment sales volumes declined in the Automotive refinish business. Volumes in the U.S architectural coatings business remained flat versus the year-ago quarter whereas in the emerging markets sales volumes of the architectural coatings declined. Marine business also witnessed a decline in sales volumes due to reduced shipbuilding activity. Overall sales volumes inched down 2% compared with the prior-year quarter.

Industrial Coatings recorded revenues of $1.0 billion, an increase of 7% versus $949 million in the prior-year quarter.  Sales volumes grew 4% in the quarter based on continued growth end-use markets growth and increased global auto builds. Segment earnings for the quarter were $106 million, an increase of $27 million from the prior-year, driven by volume and price gains coupled with aggressive cost management due to raw material inflation.

Architectural Coatings (Europe, Middle East and Africa) posted revenues of $449 million, up 5% from last year's $426 million. The increase in revenues was offset by negative foreign currency translation. The segment income increased by $6 million year-over-year to $8 million due to higher volumes.

Optical and Specialty Materials revenues were $259 million, down 3% from the year-ago quarter. Floods in Thailand impacted the optical products, and led to the disruption in the supply chains, which in turn, led to lower volumes. It also negatively impacted the segment income in the quarter, which fell by $4 million year over year to $53 million.

Commodity Chemicals segment reported a 0.5% increase in revenues to $398 million, led by improved pricing offset by a decrease in volumes resulting from lower chlorine industry demand and customer inventory management actions.  Segment income decreased by $10 million year over year to $63 million.

Revenues in the Glass segment were $256 million compared with $258 million in the prior-year period. Income was $19 million in the reported quarter a decline from the year-ago income of $29 million primarily due to lower volumes, lower capacity utilization, and lower licensing and equity earnings.

Financial Position

PPG Industries had cash and cash equivalents of approximately $1.5 billion as of December 31, 2011 compared with $1.3 billion as of December 31, 2010.  By way of its cash back strategy the company has returned $1.2 billion, or 85% of  cash flow from operations in 2011, to shareholders in the form of dividends and share repurchases during 2011.


PPG expects its first quarter results of 2012 to be similar to the fourth quarter of 2011 and believes that the European market will continue to remain a challenge for the company. However, the company expects the U.S. economy to recover moderately. PPG expects to increase the product prices going forward while benefiting from lower costs of natural gas.

The company expects emerging markets to witness higher growth rates compared with its developed markets. However, the growth in the emerging markets is expected to be more moderate and erratic.

Our Take

PPG has a strong cash position, and it continues to continue to utilize cash on earnings growth initiatives. The company has also returned cash to its shareholders in the form of uninterrupted dividend pay outs. It also expects to deploy its strong cash position for continuous growth and aims to end 2012 with a cash balance of less than $1 billion.

However, raw material costs have been a matter of concern for PPG's earnings. Though the raw material costs have shown a moderating trend, the price of its primary raw material titanium dioxide (TiO2) has been escalating. Besides, PPG faces stiff competition from the DuPont Performance Coatings segment of  EI DuPont de Nemours & Co.  ( DD ) and BASF Coatings AG.

Therefore the company maintains a Zacks #3 Rank on its shares  which implies a Hold rating for the short term (1 to 3 months) and we reiterate our Neutral recommendation on the stock for long term (more than 6 months).

DU PONT ( EI ) DE ( DD ): Free Stock Analysis Report
PPG INDS INC ( PPG ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DD , EI , PPG



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