We are upgrading our long-term recommendation on
PPG
Industries
(
PPG
) to Outperform from Neutral. The company's strategy of
diversifying its business across various products and geographies
has come in handy in difficult times of the economy.
It has trumped the Zacks Consensus Estimates over the last four
quarters, which is a testimony to the fact that it has done well
even when the economy was under pressure. More importantly, the
company's revenues from emerging markets grew over the last three
years and constituted 27% of total revenue in 2011.
PPG Industries is focused on tapping the potential of emerging
markets and acquired the coatings business of Colpisa earlier this
year. The acquisition has led the company to become the only major
coatings supplier to automotive original equipment manufacturers
(OEMs) with a production facility in Columbia.
In addition, the company has an impressive cost cutting and
restructuring strategy to boot. It expects to save 20 to 25 cents a
share towards the end of the year through its restructuring
measures.
However, the company's considerable presence in the U.S.
construction, European architectural and global auto, appliance and
industrial coating markets leaves it vulnerable to economic
headwinds. The construction market in the U.S. might exhibit
lethargic growth in the near-term and affect the company's earnings
generating potential.
Moreover, PPG Industries' operational performance is tied to raw
material imports and energy. As a result, any significant change in
the price of natural gas or strengthening of foreign currency
against the local currency of its manufacturing facilities might
have an adverse impact on results.
The company's first-quarter 2012 adjusted net earnings
(excluding one-time items) of $1.81 a share exceeded the Zacks
Consensus Estimate of $1.79. Revenues jumped 6% year over year to
$3,752 million, trumping the Zacks Consensus Estimate of $3,696
million.
The jump in revenues was driven by across the board improvement
in the company's coatings businesses. Its businesses were also
helped by robust domestic demand along with growth in emerging
regions. However, weakness in Europe pulled back some of the growth
seen in the company's businesses.
Going forward, the company anticipates that domestic growth in
the second quarter will be consistent with the first quarter. It
also expects rapid growth in emerging markets on the back of
improved industrial activity in China. However, it expects the
European market to be a sore point in the second quarter as
well.
PPG competes with
EI DuPont de Nemours & Co.
(
DD
) and BASF Coatings AG and currently holds a short-term Zacks #1
Rank (Strong Buy).
DU PONT (EI) DE (DD): Free Stock Analysis
Report
PPG INDS INC (PPG): Free Stock Analysis Report
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