PPG Industries (PPG) Q2 Earnings Trump on Gains in Europe - Analyst Blog

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Coatings giant PPG Industries ( PPG ) topped earnings expectations in the second quarter of 2014 on healthy results across major markets, notably Europe where earnings jumped 28%. Cost reduction measures and strength in the automotive OEM coatings market supported the results.

Profit from continued operation (as reported) was $393 million or $2.80 per share in the second quarter, climbing roughly 24% from $318 million or $2.19 per share posted a year ago. Consolidated profit rose 13% year over year to $386 million or $2.75 per share. The improvement was led by strong performance in Europe as PPG gained from gradual economic recovery in the region.  

Barring one-time items, the Pittsburgh-based company raked in earnings from continuing operations of $2.83 a share in the quarter that topped the Zacks Consensus Estimate of $2.79. The adjusted earnings exclude pension-related costs and acquisition charges.

Revenues moved up 5% year over year to $4,082 million in the reported quarter. It fell short of the Zacks Consensus Estimate of $4,097 million. The company benefited from higher volumes across major regions in the quarter.

Segment Highlights

Revenues from the Performance Coatings division went up 4% year over year to $2.3 billion in the quarter helped by acquisitions, higher volumes, favourable currency impact and improved pricing. The company saw higher sales across aerospace and automotive refinish businesses. Architectural coatings sales rose modestly in North America while sales volumes in EMEA (Europe, Middle East and Africa) moved up in low single-digit clip. However, PPG Industries continues to see lower marine coatings sales.

Sales from the Industrial Coatings segment rose 7% to $1.5 billion on the back of volume gains across the board. Automotive OEM coatings volumes rose by high single-digit percentages in the quarter. The industrial coatings and specialty coatings and materials businesses also recorded strong volume gains on strength in specific end markets.

Revenues from the Glass segment moved up 7% to $289 million on higher demand of fiber glass. Flat glass volumes rose on increased residential activity in North America.

Financials

PPG Industries ended the quarter with cash and cash equivalents of $1,986 million, up around 60% year over year. Long-term debt was $2,958 million, down roughly 12% year over year.

PPG Industries repurchased 500,000 shares worth $100 million during the quarter and plans to spend $3 billion to $4 billion in 2014 and 2015 on acquisitions and share repurchases.

Outlook

PPG Industries remains focused on effectively deploying its healthy cash position on further earnings-accretive opportunities. The company believes that its cost-cutting actions coupled with geographic diversity will enable it to continue its strong earnings performance leveraging higher global demand.

PPG Industries will continue to gain from cost synergies from acquisitions. The acquisition of Akzo Nobel 's ( AKZOY ) North American architectural coatings business, in Apr 2013, has bolstered its branded paint product offerings and scale in the North American architectural paint market.

Moreover, the recently announced buyout of Mexico's leading paint company - Consorcio Comex S.A. de C.V. - for $2.3 billion represents a significant move by PPG Industries as it will reinforce its architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio. The deal came after U.S. paint major Sherwin-Williams ( SHW ) ended its pursuit of Comex's Mexican business in Apr 2014.

PPG Industries has a diversified base of products and markets, and looks to grow its businesses strategically along with controlling costs. However, some of the end markets such as non-residential construction and marine coatings remain somewhat sluggish.

PPG Industries is a Zacks Rank #3 (Hold) stock.

Another chemical company LyondellBasell Industries NV ( LYB ), which retains a Zacks Rank #2 (Buy), is slated to report its second-quarter results on Jul 25.


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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 , Earnings , Stocks

Referenced Stocks: PPG , SHW , LYB , AKZOY

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