PPG's 1Q Earnings Beat, Profit Skyrockets - Analyst Blog

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Coatings giant PPG Industries Inc ( PPG ) beat earnings expectations in the first quarter of 2013 buoyed by continued momentum across automotive OEM and aerospace markets. Strength across North America and Asia was somewhat masked by nagging weakness in Europe.

The Pittsburgh-based company posted earnings (excluding one-time items) from continuing operations of $1.58 a share in the quarter, which beat the Zacks Consensus Estimate by a couple of cents. The adjusted earnings exclude pension and environmental costs, acquisition expenses and tax-related gains.

PPG Industries, in Jan 2013, spun off its commodity chemicals business to Georgia Gulf Corp., now known as Axiall Corporation ( AXLL ), for $2.1 billion. The business has been reported as discontinued operation.

Consolidated profit, as reported, zoomed to around $2.4 billion or $16.31 per share from $13 million or 8 cents per share earned in the prior-year quarter. The bottom line was boosted by a one-time gain on sale of the commodity chemicals business. Profit from continued operation was $219 million or $1.48 a share versus a loss of $50 million or 32 cents per share a year ago.

Shares of PPG Industries, which gained 59% last year, rose roughly 1.8% in pre-market trading.

Revenues

Revenues were essentially flat year over year at $3,331 million, missing the Zacks Consensus Estimate of $3,424 million. PPG Industries' industrial coatings business delivered strong performance in the quarter. Its automotive OEM coatings franchise continued strong momentum with healthy volume gains. However, weakness was seen in the architectural coatings business.

Segment Analysis

Revenues from the Performance Coatings division edged down 2% year over year to $1.1 billion in the quarter as lower volume more than offset gains from acquisitions and pricing. Strength across aerospace and U.S. architectural coatings markets was somewhat offset by weakness in automotive refinish.

Industrial Coatings segment sales climbed 10% year over year to $1.2 billion driven by volume gains in the automotive OEM coatings business and contributions from acquisitions. Demand in the industrial coatings business was mixed in the quarter. Weakness in Europe was more than offset by strong coatings demand across North America and Asia Pacific markets.

Revenues from the Architectural Coatings (Europe, Middle East and Africa) division dipped 12% to $454 million on lower volumes due to economic weakness. The division's sales were hurt by unfavorable weather conditions and lesser sales days.

Optical and Specialty Materials sales fell 6% to $314 million in the quarter on lower volumes due to a decline in optical consumer activity in the U.S. Moreover, sales in the year-ago quarter were benefited by a recovery in the optical industry following a late 2011 flood in Thailand. However, the division benefited from gains in Europe driven by the successful roll-out of Generation VII TRANSITIONS lenses and better silica demand.

Sales from the Glass segment were flat year over year at $256 million as lower fiber pricing offset an increase in flat glass volumes.

Balance Sheet

PPG Industries' cash and cash equivalents more than doubled year over year to roughly $2 billion at the end of the reported quarter. Total debt fell 7% year over year to around $3.4 billion. The company spent roughly $140 million on share buybacks and repaid debt worth $600 million in the quarter.

Acquisitions

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 AkzoNobel, N.V. ( AKZOY ) for $1.05 billion. This marked the second-largest acquisition in the company's history.

The acquisition expanded PPG Industries' branded paint product offerings and scale in the North American architectural paint market. It now expects to achieve $200 million in annual synergies from the buyout within the first three full years.

Moreover, in an effort to strengthen its position in the aerospace industry, PPG Industries recently landed a definitive deal to buy specific assets of privately-held specialty coatings company Deft Incorporated. The acquisition, which is subject to customary closing conditions, is expected to close in second-quarter 2013.

Outlook

Moving ahead, PPG Industries envisions mixed economic trends in the second quarter with continued healthy momentum across North America and Asia and persistent weakness in Europe. Moreover, it will continue to execute cost containment through its restructuring program, lending support to earnings.

PPG Industries has a diversified base of products and markets, and looks to grow its businesses strategically along with controlling costs. However, the European market is expected to remain under pressure and raw material inflation and currency headwinds remains concerns for the company.

PPG Industries currently holds a short-term Zacks Rank #3 (Hold).

Eastman Chemical ( EMN ), which also belongs to the chemical industry, carries a Zacks Rank #2 (Buy).



AKZO NOBEL NV (AKZOY): Free Stock Analysis Report

AXIALL CORP (AXLL): Free Stock Analysis Report

EASTMAN CHEM CO (EMN): 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 , Earnings , Stocks

Referenced Stocks: AKZOY , AXLL , EMN , PPG

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