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PPG Industries' Q1 Earnings Top, Currency Hurts Sales - Analyst Blog

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PPG IndustriesPPG maintained its impressive earnings surprise streak in the first quarter of 2015, aided by synergies from acquisitions and its cost and productivity actions. But unfavorable currency swings weighed on its top line in the quarter.

The Pittsburgh-based coatings giant recorded profit from continued operations (as reported) of $321 million or $2.33 per share in the reported quarter, a roughly 16% rise from $277 million or $1.97 per share posted a year ago. Consolidated profit tumbled around 74% year over year to $322 million or $2.34 per share.

Barring charges related to portfolio transformation actions, the company logged earnings from continuing operations of $2.37 per share in the quarter that trounced the Zacks Consensus Estimate of $2.33.

However, currency translation took a bite out of the company's revenues in the quarter. Revenues for the quarter were $3,662 million, a modest 1% year over year rise. Currency impact reduced sales by 7% (around $260 million), offsetting contributions from acquisitions and moderate volume gains. Revenues came below the Zacks Consensus Estimate of $3,776 million.

The company, in another release, announced a hike in its quarterly dividend and a 2-for-1 stock split. It also unveiled a new restructuring plan.

PPG Industries Inc. - Earnings Surprise | FindTheCompany

Segment Review

Revenues from the Performance Coatings division moved up 2% year over year to $2.06 billion in the quarter. Gains from acquisitions were partly masked by adverse currency translation. The company saw sustained volume gains across aerospace and automotive refinish businesses on higher demand.

Architectural coatings volumes were mixed in the U.S. and Canada while sales volumes in EMEA (Europe, Middle East and Africa) were negative vis-à-vis a year ago with demand remaining mixed in that region. The company saw lower protective and marine coatings volumes in the quarter, impacted by reduced demand in North and South America.

Industrial Coatings segment sales fell 2% to $1.34 billion as strong volume gains were more than offset by unfavorable currency swings. Automotive OEM coatings volumes rose by high single-digit clip in the quarter with growth witnessed across all regions. The industrial coatings and specialty coatings and materials businesses logged modest gains. Packaging coatings sales also increased in the quarter.

Revenues from the Glass segment inched up 0.4% to $267 million as pricing gain was eclipsed by currency headwind. Flat glass volumes rose slightly on improved product mix. Fiber glass volumes fell in the U.S., neutralizing a gain in Europe.

Financials and Shareholder Returns

PPG Industries exited the quarter with cash and cash equivalents of $735 million, down around 71% year over year. Long-term debt was $4,023 million, up roughly 19% year over year.

PPG Industries bought back 860,000 shares worth $200 million during the quarter The company has around $1.5 billion remaining of its existing buyback authorization.

PPG Industries board has approved an increase in its quarterly dividend to 72 cents per share from the earlier payout of 67 cents as well as a 2-for-1 split of its common stock. The company's shares will start trading on a split-adjusted basis on Jun 15.

Outlook

Moving ahead, PPG expects a resumption of growth in Europe and higher growth rate in the U.S. The company will remain actively focused on managing costs.

PPG Industries has initiated a business-restructuring program that includes actions aimed at achieving cost synergies related to its recent acquisitions. It also involves right-sizing headcount and production capacity in certain businesses and regions.

The company expects to take a restructuring charge of $135 million to $140 million (before tax) in second-quarter 2015. The restructuring actions are expected to deliver pretax savings of $100 million to $105 million by 2017.

PPG Industries, a Zacks Rank #3 (Hold) stock, remains focused on developing new products and effectively deploying cash on further earnings-accretive opportunities. The company has an active acquisition pipeline and expects share buybacks to remain a key part of its cash allocation.

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

Moreover, the buyout of Mexico's leading paint company Comex for $2.3 billion represents a major move by PPG Industries as it reinforces its architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio.

However, PPG is exposed to unfavorable currency exchange translation (especially in emerging markets) stemming from a stronger dollar. In addition, some of the company's end-markets including commercial construction still remain somewhat sluggish.

PPG Industries' first-quarter results put a spotlight on underlying trends in the paint and coatings space. Rival Sherwin-Williams SHW , which also reported ahead of the bell today, missed both revenues and earnings expectations in the first quarter, but painted an upbeat outlook for second-quarter 2015.

Another prominent paint maker, Valspar VAL , is expected to report its quarterly results next month.

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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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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