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Coatings giant PPG Industries (PPG - Analyst Report) is set to release its fourth-quarter 2013 results before the opening gong on Jan 16.  

In the last quarter, the Pennsylvania-based company delivered a 4.3% positive earnings surprise on the heels of improving demand trends across major markets, cost reduction measures and continued strong performance of its coatings business. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

PPG Industries is expected to see a seasonally weaker fourth quarter than the third across several of its end markets including architectural coatings. However, it should gain from continued improvement in global demand trends.

We expect healthy momentum across aerospace and automotive OEM markets coupled with PPG Industries’ cost containment measures through its restructuring program to lend support to earnings in the fourth quarter. The company’s restructuring measures are expected to fetch meaningful cost savings this year.

Moreover, PPG Industries will gain from its acquisition of North American architectural coatings business of Dutch paints company AkzoNobel, N.V. (AKZOY). The acquisition has reinforced its branded paint product offerings and scale in the North American architectural paint market. The company has already achieved more than half of the expected synergies of $200 million from the acquisition.

However, a weak European market may weigh on PPG Industries’ results in the December quarter. The company continues to face a challenging demand environment in the region with volumes remaining in the negative territory. Moreover, some of the key end markets such as non-residential construction, protective and marine coatings and EMEA architectural coatings remain sluggish.

Earnings Whispers

Our proven model does not conclusively show that PPG Industries is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: ESP for PPG Industries is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.73.

Zacks Rank #2 (Buy): PPG Industries’ Zacks Rank #2 lowers the predictive power of ESP. The Zacks Rank #2 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
 
Other Stocks to Consider

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:

Compass Minerals International Inc. (CMP - Snapshot Report) has earnings ESP of +7.69% and holds a Zacks Rank #2 (Buy).

Koppers Holdings Inc. (KOP - Snapshot Report) has earnings ESP of +1.61% and carries a Zacks Rank #2 (Buy).

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