PPG Industries (PPG) bested earnings expectations in the third quarter of 2014 on gains across major regions, notably Europe where earnings rose 17% despite mixed sales performance in the region. Cost reduction measures and synergies from acquisitions also supported the results.
Profit from continued operation (as reported) was $377 million or $2.70 per share in the reported quarter, a roughly 85% surge from $204 million or $1.41 per share posted a year ago. Consolidated profit jumped 64% year over year to $371 million or $2.66 per share.
Barring one-time charges and gains, the Pittsburgh-based coatings giant recorded earnings from continuing operations of $2.82 a share in the quarter that topped the Zacks Consensus Estimate by 6 cents.
Revenues went up around 4% year over year to $3,935 million in the reported quarter. It, however, trailed the Zacks Consensus Estimate of $3,983 million. Sustained gains across aerospace and automotive OEM coatings contributed to higher sales.
Segment Review
Revenues from the Performance Coatings division moved up 3% year over year to $2.26 billion in the quarter, aided by higher volumes, acquisitions, favorable currency impact and improved pricing. The company saw mid single-digit gains across aerospace and automotive refinish businesses. Architectural coatings sales rose by low single-digit clip in North America while sales volumes in EMEA (Europe, Middle East and Africa) were flat as demand remained mixed in that region. The company saw improved sales of protective and marine coatings in the quarter.
Industrial Coatings segment sales rose 7% to $1.4 billion on the back of volume gains. Automotive OEM coatings volumes rose by high single-digit clips in the quarter with growth witnessed across key regions. The industrial coatings and specialty coatings and materials businesses also recorded sales gains in all regions while packaging coatings sales were slightly weaker.
Revenues from the Glass segment rose 2% to $283 million on higher pricing. Flat glass volumes rose strongly on increased demand in both residential and non-residential end-markets, offset by a decline in fiber glass volumes resulting from reduced product availability.
Financials
PPG Industries exited the quarter with cash and cash equivalents of $2,468 million, up around 58% year over year. Long-term debt was $2,954 million, down roughly 12% year over year.
PPG Industries bought back 740,000 shares worth $150 million during the quarter. It has spent $719 million on dividends and share repurchases so far this year.
Outlook
Moving ahead, PPG Industries remains optimistic in delivering strong earnings on healthy momentum across several of its major end-use markets. The company is also seeing a recovery across North American non-residential construction and marine markets.
PPG Industries also remains focused on effectively deploying its healthy cash position on further earnings-accretive opportunities. The company has an active acquisition pipeline and expects share buybacks to remain a major part of its cash allocation. PPG Industries plans to spend at or above the higher end of its earlier announced expectation of $3 billion to $4 billion of cash in 2014 and 2015 on acquisitions and share repurchases.
PPG Industries should continue to gain from cost synergies from acquisitions. The acquisition of Akzo Nobel’s (AKZOY) North American architectural coatings business, in Apr 2013, has bolstered its branded paint product offerings and scale in the North American architectural paint market.
Moreover, the proposed buyout of Mexico’s leading paint company – Consorcio Comex S.A. de C.V. – for $2.3 billion represents a significant move by PPG Industries as it will reinforce its architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio. The deal came after Sherwin-Williams (SHW) ended its pursuit of Comex’s Mexican business in Apr 2014.
PPG Industries recently said that Mexico’s Federal Economic Competition Commission (FECC) has extended the review timeline of the Comex acquisition deal. The company still expects to close the acquisition in fourth-quarter 2014.
PPG Industries is a Zacks Rank #3 (Hold).
Another chemical company LyondellBasell Industries NV (LYB), which retains a Zacks Rank #2 (Buy), is slated to report its third-quarter results on Oct 24.
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