PPG Industries PPG is set to release its first-quarter 2015 results ahead of the bell on Apr 16. Last quarter, the Pennsylvania-based coatings giant delivered a roughly 7.1% positive earnings surprise on gains across its aerospace and automotive refinish businesses, supported by synergies from acquisitions.
PPG Industries has beaten the Zacks Consensus Estimate in the trailing 4 quarters with an average beat of around 4%. Let’s see how things are shaping up for this announcement.
Factors to Consider
PPG Industries’ results, in the March quarter, are expected to continue to be supported by strong momentum across automotive OEM, automotive refinish and aerospace markets. The company’s cost containment measures through its restructuring program should also aid to its earnings.
PPG Industries should also continue to gain from cost synergies from acquisitions. The acquisition of Akzo Nobel’s AKZOY North American architectural coatings business has reinforced its branded paint product offerings and scale in the North American architectural paint market.
Moreover, the 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 reinforces its foothold in Mexico and Central America by offering a leading architectural coatings portfolio. PPG Industries expects the acquisition to add around $1 billion to its sales in 2015 and be accretive to its earnings.
PPG Industries also stands to benefit from lower oil prices as it will reduce its input costs, leading to margin expansion. The company will also gain from lower net interest expenses in the first quarter (an expected year over year reduction of $18 million).
However, PPG Industries is exposed to unfavorable currency exchange translation (especially in emerging markets) stemming from a stronger dollar. The company sees currency headwinds in 2015 and expects an unfavorable impact of $650-$750 million on its sales and $65-$75 million on its earnings.
In addition, some of the company’s end-markets including commercial construction still remain somewhat sluggish. Overall growth in Europe is also expected to remain subdued and mixed by country.
Earnings Whispers
Our proven model does not conclusively show that PPG Industries is likely to beat earnings in the first quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Negative Zacks ESP: The earnings ESP for PPG Industries is -4.27% – the difference between the Most Accurate estimate of $2.24 and the Zacks Consensus Estimate of $2.34. This indicates a likely negative earnings surprise.
Zacks Rank #3 (Hold): PPG Industries’ Zacks Rank #3 when combined with an ESP of -4.27% makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some other companies in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Agrium Inc. AGU has an Earnings ESP of +36.11% and a Zacks Rank #3 (Hold).
International Flavors & Fragrances Inc. IFF has an earnings ESP of +2.82% and a Zacks Rank #3 (Hold).
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