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Will PPG Industries (PPG) Disappoint This Earnings Season?

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PPG Industries Inc. (PPG - Free Report) is set to release third-quarter 2017 results ahead of the bell on Oct 19.

In the last quarter, PPG Industries reported adjusted earnings of $1.83 per share, up 5.8% from the year-ago figure. Earnings beat the Zacks Consensus Estimate of $1.81. Net sales inched up 1% year over year to $3,806 million, missing the Zacks Consensus Estimate of $3,898.6 million.

PPG Industries has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average of 1.09%.

PPG Industries has underperformed the industry over the past three months. The company’s shares have inched up around 0.2% over this period, compared with roughly 8.9% gain recorded by the industry.

 

Let’s see how things are shaping up for this announcement.

Factors at Play

PPG Industries, last month, said that it anticipates the impacts from recent hurricanes and earthquakes to affect its third-quarter earnings by 5 cents to 10 cents. This includes increased costs associated with transportation and logistics for raw materials and inventory to avoid customer disruptions, increased raw materials costs, facility and inventory damage net of any insurance recoveries, and the impact from lower sales in the affected areas.

Moreover, PPG Industries expects third-quarter volume growth rate to be above 1.5%, exceeding the growth rate for first-half 2017. In the third quarter, moderate raw material cost inflation was earlier anticipated by the company. As a result of high levels of inflation persisting due to ongoing impacts from supplier outages in Europe and continued mandatory curtailments of raw material production in China, the company expects third-quarter inflation rate to match or possibly exceed the sequentially prior quarter, excluding the hurricane impacts.

Inclusive of the recent business trends and hurricane effects, PPG Industries expect third-quarter earnings per share from continuing operations to be $1.48-$1.55.

Net sales for PPG Industries’ Performance Coatings segment for the third quarter is projected to witness a 1.1% decline from the second quarter as the Zacks Consensus Estimate for the third quarter is pegged at $2,276 million. Segment income is also expected to decline 7.5% sequentially as the Zacks Consensus Estimate is $382 million for the third quarter.

Moreover, the Zacks Consensus Estimate for net sales for the Industrial Coatings segment is expected to be $1,488 million for the third quarter, reflecting an estimated 1.1% decline on a sequential comparison basis. Segment income is also expected to decline 5.3% sequentially as the Zacks Consensus Estimate is $250 million for the third quarter.

Unfavorable currency exchange translation weighed on sales and income in the Performance Coatings segment in the second quarter and is expected to remain a headwind in the to-be-reported quarter.

Moreover, some of the company’s end-markets including marine still remain sluggish. PPG Industries is also exposed to raw materials cost pressure which may continue to affect net income in the Industrial Coatings unit in the third quarter.

PPG Industries, Inc. Price and EPS Surprise

 

 

Earnings Whispers

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

Zacks ESP: Earnings ESP for PPG Industries is currently pegged at -1.09%. This is because the Most Accurate estimate is $1.51 while the Zacks Consensus Estimate is pegged at $1.53. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PPG Industries presently carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies in the chemical space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

FMC Corporation (FMC - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical Corporation (WLK - Free Report) has an Earnings ESP of +5.14% and carries a Zacks Rank #1.

Ingevity Corporation (NGVT - Free Report) has an Earnings ESP of +2.94% and flaunts a Zacks Rank #1.

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