PPG Industries (PPG) to Maintain Current Business Portfolio

PPG Industries, Inc. PPG announced that two separate and independent reviews of its business portfolio have been completed by Morgan Stanley and Goldman Sachs. The firms independently conducted multi-faceted evaluations of the company’s business, which included identifying opportunities for potential separation.  

The company’s board and management team have received a full report from each advisor. On the basis of these reports and its own evaluation, PPG Industries’ board concluded that maintaining the company’s existing business portfolio composition, including industrial coatings and architectural businesses, will provide the best opportunity for maximize shareholder value over the long term.

PPG Industries’ board and management are strongly aligned and accountable for delivering on its current-year commitments along with potential future growth, the company noted. Notably, it will be able to avoid negative operational, commercial and procurement effects by maintaining the current portfolio. Also, it can preserve full strategic flexibility for the future.

Additionally, the company wrapped up an engagement with a globally-recognized consulting firm that focused on growth investment and operational reviews for its architectural coatings business in the United States and Canada. It targets a full and swift earnings recovery following the prior-year customer assortment changes.

Recommendations from the study includes certain commercial network optimizations. It also involves implementation of further cost structure improvements, along with adopting new digital technologies and employing additional sales effectiveness tools. The company is executing these initiatives with the goals of achieving full recovery of profitability starting next quarter. It believes these actions will position the business for continued success.

PPG Industries conducted a rigorous internal operational and organizational review. It has identified certain opportunities to further improve the operating efficiency and also sustain commercial excellence. It is finalizing a new cost-savings program, which targets full-year run-rate savings of roughly $125 million.

The new program is likely to include manufacturing optimization, targeted pruning of low profit business, exiting some smaller product lines that are below profitability expectations, reorganizing certain business unit cost structures on the basis of current economic climate, minimize redundancy actions associated with recent acquisitions. It also expects to include second-quarter charge in the $185-$200 million range, barring certain non-cash items.

Shares of PPG Industries have gained 6% in the past year, against the 33.1% decline of the industry.

The company’s adjusted earnings per share (EPS) in the first quarter came in at $1.38, down around 2.8% from the prior year’s $1.42. However, the reported figure beat the Zacks Consensus Estimate of $1.21.

PPG Industries expects second-quarter EPS in the range of $1.76-$1.86, which includes unfavorable currency-translation impacts similar to the first quarter.

Zacks Rank & Key Picks

PPG Industries currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Materion Corporation MTRN, Fortescue Metals Group Ltd. FSUGY and AngloGold Ashanti Limited AU, all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 23.1% for 2019. The company’s shares have gained 15.5% in the past year.

Fortescue Metals has an impressive projected earnings growth rate of 101.5% for the current year. The company’s shares have surged 74.5% in a year’s time.

AngloGold has an estimated earnings growth rate of 86.8% for the current year. Its shares have rallied 43% over the past year.

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