PPG Industries (PPG) is set to release its fourth-quarter 2014 results ahead of the bell on Jan 15. Last quarter, the Pennsylvania-based coatings giant delivered a roughly 2.2% positive surprise on gains across major regions, especially Europe, and its cost reduction initiatives. It also benefited from strength in the automotive OEM coatings market.
PPG Industries has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of around 3.4%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Healthy momentum across automotive OEM and aerospace markets and continued demand recovery in Europe are expected to support PPG’s results in the December quarter. The company’s cost containment measures through its restructuring program should also aid to its earnings in the quarter.
PPG Industries should also continue to gain from cost synergies from acquisitions. The acquisition of Akzo Nobel’s (AKZOY) North American architectural coatings business in 2013 has bolstered its branded paint product offerings and scale in the North American architectural paint market.
In addition, the recent buyout of Mexico’s leading paint company – Consorcio Comex S.A. de C.V. – for $2.3 billion represents a significant move by PPG as it will boost its foothold in Mexico and Central America by offering a leading architectural coatings portfolio.
However, PPG Industries remains exposed to raw material cost pressure and unfavorable currency exchange swings. The company sees currency headwinds in the fourth quarter stemming from a weaker euro (vis-à-vis the dollar) and expects an unfavorable impact of $60-$70 million on its sales.
Moreover, some of the company’s end markets remain weak. Commercial construction in the U.S., although recovering lately, is expected to remain sluggish in the near future.
Earnings Whispers
Our proven model shows that PPG Industries has the right combination of two key ingredients to beat earnings.
Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction) for PPG Industries is 2.03% – the difference between the Most Accurate estimate of $2.01 and the Zacks Consensus Estimate of $1.97. This indicates a likely positive earnings surprise.
Zacks Rank #2 (Buy): PPG Industries’ Zacks Rank #2 increases the predictive power of its ESP.
Note that stocks with Zacks Rank of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Stocks That Warrant a Look
Here are some other chemical companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Trecora Resources (TREC) has an earnings ESP of +5.00% and holds a Zacks Rank #2 (Buy).
The Dow Chemical Company (DOW) has an earnings ESP of +7.35% and carries a Zacks Rank #3 (Hold).
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