PPG Industries Inc. (PPG) expects to make an investment of around $750 million to $1.5 billion in 2011 for acquisitions, debt repayment and share repurchases, which will result in 2012 earnings increase of 15 cents to 55 cents a share.
The company is also enacting further price increases in the third quarter.
Recently, PPG Industries alsocompleted the acquisition of certain assets of Equa-Chlor Inc. a Longview, Washington based chlor-alkali manufacturer for approximately $27 million.
With the acquisition of Equa-Chlor, PPG’s chlor-alkali and derivatives business will gain a strategic foothold in the western United States, along with improving its ability to supply key customers throughout the country. Equa-Chlor will complement PPG’s chlor-alkali and derivatives business.
The acquisition will also give PPG access to Equa-Chlor's railcars, which will help cut logistics costs. Equa-Chlor’s advantageous geographic location will also enable PPG to realize administrative synergies and reduce transportation costs in the U.S.
The acquisition is expected to be accretive to PPG within a year.
PPG released its first-quarter results in April 2011, posting a net income of $228 million or $1.40 per share for the first quarter of 2011 compared with $115 million or 69 cents in the year-ago quarter. The results surpassed the Zacks Consensus Estimate of $1.34 per share.
Net sales for the quarter were $3.5 billion, up 13% from $3.1 billion in the first quarter of 2010. It also outperformed the Zacks Consensus Estimate of $3.3 billion.
The company witnessed double-digit percentage sales across all its major regions. The improvement was attributed to demand improvements, higher pricing in each of its coatings businesses, successful cost reduction initiatives and a gradual industrial recovery worldwide, partly offset by rising raw material costs and disappointing trends in the construction markets in the developed economies.
Looking ahead, the company anticipates further pricing gains in every segment, driving volume increase for PPG; an advantage that it expects to leverage into higher earnings through continued cost focus. PPG continues to work on initiatives for deploying cash to grow earnings.
The company will persistently apply its disciplined approach toward evaluating acquisitions, and expects to announce several small- to medium-sized bolt-on acquisitions over the next six to nine months.
The strong first-quarter performance along with successful adoption of growth strategies and their meaningful implementation instills confidence in the company. In addition, the macro economy and the concerned industry are also showing signs of recovery.
Therefore, PPG Industries has a short-term Zacks #2 Rank (Buy) and we hold a long-term Neutral recommendation on the stock.
PPG faces stiff competition from the DuPont Performance Coatings segment of EI DuPont de Nemours & Co. (DD) and BASF Coatings AG.
DU PONT (EI) DE (DD): Free Stock Analysis Report
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