PPG Industries, Inc. PPG reported higher profits in the third quarter of 2015, backed by the contributions of the Comex acquisition and aggressive cost-management actions. However, unfavorable currency translation dented the company’s revenues that fell short of expectations.
The Pittsburgh-based coatings giant logged profit from continued operations (as reported) of $433 million or $1.59 per share in the reported quarter, up roughly 14.9% from $377 million or $1.35 per share recorded a year ago.
Barring after-tax charges for pension windups and transaction-related costs, the company logged earnings from continuing operations of $1.61 per share in the quarter that were in line with the Zacks Consensus Estimate.
Revenues for the quarter were $3,872 million, down around 1.6% year over year. Currency impact reduced sales by around 8% or $310 million, offsetting contributions from acquisitions. Revenues lagged the Zacks Consensus Estimate of $4,044 million.
Segment Review
Revenues from the Performance Coatings division went down 0.8% year over year to $2.24 billion in the quarter. Gains from acquisitions were partly offset by unfavorable currency swings. The company saw organic sales gains across aerospace and automotive refinish businesses on rising demand and persistent adoption of innovative PPG technologies by customers.
Architectural coatings volumes fell by high single-digits in the Americas and Asia Pacific owing to weak regional demand in Canada. Sales volumes in EMEA (Europe, Middle East and Africa) were flat year over year. The company witnessed modest protective and marine coatings volumes in the quarter as gains in protective coatings were offset by weaker marine-related demand.
The Industrial Coatings segment’s sales fell around 3% to $1.35 billion as volume gains and contributions from acquisitions were more than offset by unfavorable currency impact. Automotive OEM coatings volumes rose by a mid-single-digit percentage, with growth witnessed across all regions. Industrial coatings and specialty coatings and materials businesses saw lower volumes, down 2% year over year. Packaging coatings volumes rose by a mid-to-high single-digit percentage in the quarter.
Revenues from the Glass segment declined 2% to $278 million as improved pricing was more than offset by currency headwinds. Sales volumes for fiber glass were up by low single-digit percentage year over year, supported by growing North American demand. No sales were recorded for flat glass due to the sale of a production unit in 2014.
Financials and Shareholder Returns
PPG Industries ended the quarter with cash and cash equivalents of $1,015 million, down around 59% year over year. Long-term debt was $4,250 million, up roughly 44% year over year.
PPG Industries bought back 1.5 million shares worth $150 million during the quarter. The company has around $1.2 billion remaining of its existing buyback authorization.
Outlook
Moving ahead, PPG Industries said that it will remain actively focused on managing costs. The company expects a resumption of growth in volumes in fourth-quarter 2015 owing to continued global economic expansion, absence of customer destocking and gains from the Comex acquisition. The company is further optimistic about its previously announced restructuring efforts, synergies from its ongoing acquisitions and cash deployment.
PPG Industries has raised its cash deployment target on acquisitions and share repurchases for 2015 and 2016 to at least $2 billion to $2.5 billion from $1.5 billion to $2.5 billion expected earlier.
PPG Industries further anticipates lower impact from unfavorable foreign currency translation in the fourth quarter. The company should continue to gain from acquisitions. The purchase 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 $2.3 billion buyout of Mexico’s leading paint company – Comex – has reinforced PPG Industries’ architectural coatings business in Mexico and Central America by offering a leading architectural coatings portfolio.
Zacks Rank
PPG Industries currently carries a Zacks Rank #4 (Sell).
Better-ranked companies in the diversified chemical space include Koppers Holdings Inc. KOP and Albemarle Corporation ALB. While Koppers Holdings sports a Zacks Rank #1 (Strong Buy), Albemarle carries a Zacks Rank #2 (Buy).
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