PPG Industries To Focus More On Core Businesses

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Part of success is playing to strengths.

For companies, that can mean selling off units that aren't part of the core business.

PPG Industries ( PPG ), primarily a paints and coatings maker, had been trying to unload its chlorine and caustic soda business for years. Recently, PPG found a buyer.

Georgia Gulf ( GGC ) will acquire the business in a complicated $2.1 billion deal. The commodity chemicals business -- about 11% of PPG's total sales -- will be spun off and then merged with Georgia Gulf. PPG shareholders will get 50.5% of the new company, and Georgia Gulf shareholders will get 49.5%.

Most analysts see this deal as a win-win. PPG is free to focus more on its core business, and Georgia Gulf's core business is chemicals.

PPG's products also include Transition eyeglasses, a big part of PPG's Optical and Specialty Materials segment. The segment accounts for about 9% of total revenue.

PPG Industries has paid dividends since 1899. In June, the company nudged the quarterly payout from 57 cents a share to 59 cents, payable to shareholders of record Aug. 10.

While the company has raised the dividend for 40 consecutive years, the increases tend to be modest. The three- to five-year dividend growth rate is 3%.

The annualized yield is 2.2%.

Earnings in the second quarter rose 11% from the year-ago period, missing the Street's consensus estimate by a penny a share. Revenue fell 1%, also a slight miss. The sales miss was due to currency exchange. Currency reduced sales by 5%, according to the company.

PPG's fundamentals are mixed.

On the plus side, return on equity was 31% last year, the best in at least nine years. Pretax margin was almost 11%, the highest in the past four years. Operating cash flow per share was 52% greater than EPS.

PPG's Chemicals-Paints industry group was No. 6 of 197 groups, as of Tuesday's IBD. PPG's building sector was No. 2 of 33 sectors.

However, there are negatives. Sales growth has ranged from lackluster to nonexistent the past three quarters. And the five-year EPS Stability rating is 35 on a scale from 1 (calm) to 99 (erratic).



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 , Investing Ideas

Referenced Stocks: GGC , PPG

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