PPG Industries Tops on Q1 Earnings, Sales Miss - Analyst Blog

Coatings giant PPG Industries PPG recorded adjusted earnings from continuing operations (excluding acquisition-related expenses of $2 million or a penny per share) of $1.98 a share for first-quarter 2014, up 42% from $1.39 per share reported in the year-ago quarter. The results exceeded the Zacks Consensus Estimate of $1.88 per share.

The company has delivered record first-quarter adjusted earnings on the back of a strong coatings portfolio, broad global footprint, aggressive cost discipline, prudent cash deployment and targeted cost synergies received from acquisitions.
 
Profit from continued operation (as reported) was $277 million (or $1.97 per share) in the first quarter, surging roughly 45% from $191 million (or $1.29 per share) posted in the prior-year quarter.
 
Revenues rose 17% year over year to $3,636 million in the reported quarter from $3,108 million in the year-ago quarter. However, it missed the Zacks Consensus Estimate of $3,735 million. The year-over-year rise is attributable to higher industry demand in aerospace and automotive Original Equipment Manufacturers (OEM) coatings. Results were also aided by accelerated global volume growth across all regions including Europe where volumes grew due to economic recovery.

Segment Highlights
 
Revenues from the Performance Coatings division shot up 27% year over year to $2 billion in the quarter helped by acquisitions, rise in segment volumes coupled with currency translation and price accounting. The company saw higher sales across aerospace and automotive refinish businesses.

The North American architectural coatings business saw modest sales growth excluding favorable acquisition impacts. Volumes from the Architectural Coatings EMEA (Europe, Middle East and Africa) division edged up mid-single-digit percentages as a result of partial regional demand recovery and favorable weather conditions in the region. Protective coatings volume growth, including acquisition-related revenue synergies were offset by weaker marine coatings sales.

Sales from the Industrial Coatings segment moved up 7% to $1.4 billion on the back of volume gains in the automotive OEM coatings business. Volumes rose across all regions. Volumes gains in the industrial coatings and specialty coatings and materials businesses were led by higher sales in the North America and the Asia Pacific region.

Sales from the Glass segment rose 4% to $266 million on improved demand of fiber glass partly offset by lower flat glass volumes.

Discontinued Operations

On Mar 31, PPG Industries sold its 51% ownership stake in the Transitions Optical joint venture and its fully owned optical sunlens business to ophthalmic lenses giant Essilor International. PPG Industries and Essilor held 51% and 49% stakes in the joint venture, respectively.

Financial results for the divested businesses are stated under discontinued operations. Net income from discontinued operations includes the historical operating results for PPG's former interest in the joint venture and a net gain of $946 million in the quarter ended Mar 31, 2014. For the quarter ended Mar 31, 2013, operating results also include PPG's former commodity chemicals business that was separated on Jan 28, 2013, and a net gain on that transaction of roughly $2.2 billion.

Financials
 
PPG Industries' cash and cash equivalents of $2,559 million as of Mar 31, 2014, were down around 27% from $2,021 million recorded a year ago. Long-term debt was $3,373 million as of Mar 31, 2014, compared with $3,353 million as of Mar 31, 2013.

Dividend

PPG Industries has increased its quarterly dividend by 10% to 67 cents per share from the prior payout of 61 cents a share. The raised dividend will be paid on Jun 12, 2014, to stockholders of record as of May 12, 2014.

Share Repurchase

PPG Industries' Board has authorized the repurchase of shares worth $2 billion. The authorization is effective immediately and it does not expire and gives management discretion in determining the conditions under which shares may be bought back. The company repurchased 1.1 million shares (or $200 million) during the first quarter

 Outlook
 
Moving ahead, PPG Industries envisions solid growth to continue but not uniformly across all coatings end use markets. The company is well positioned in the coatings market with a balanced coatings portfolio, both regionally and in the end-use market, providing huge growth opportunities while reducing the impact of any individual fluctuation.

Along with this, PPG Industries holds a strong cash position, which it intends to utilize in a timely, disciplined manner with a continued focus on earnings-accretive cash uses, including additional acquisitions and share repurchases.

PPG Industries, a Zacks Rank #3 (Hold) stock, has a diversified base of products and markets, and looks to grow its businesses strategically along with controlling costs.
 
Other companies in the chemical industry worth considering include Methanex Corp. MEOH, Olin Corp. OLN and Huntsman Corporation HUN, all carrying a Zacks Rank #2 (Buy).