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What's in Store for PPG Industries (PPG) in Q2 Earnings?

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PPG Industries Inc. (PPG - Free Report) is set to release second-quarter 2018 results ahead of the bell on Jul 19.
 
Last quarter, the paint giant logged net earnings from continuing operations of $347 million or $1.38 per share, up roughly 6% from the year ago figure of $328 million or $1.27. Adjusted earnings of $1.39 per share, however, missed the Zacks Consensus Estimate of $1.41.
 
Net sales went up 9% year over year to $3,786 million, beating the Zacks Consensus Estimate of $3,730 million.
 
PPG Industries surpassed the Zacks Consensus Estimate in two of the trailing four quarters, missed once and met expectations on the other occasion, delivering an average beat of 0.1%.
 
The company underperformed the industry over a year. While PPG Industries’ shares lost around 9.4%, the industry saw a rise of roughly 4.4%.

 
 

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

 

Factors at Play
 
PPG Industries, in its first-quarter call, said that it sees positive momentum in overall economic growth. The company is on track with its restructuring actions that are expected to provide cost savings between $50 million and $55 million in 2018, higher than what it had earlier expected. For 2018, PPG Industries anticipates corporate expenses to be between $175-$190 million. The company also sees the impact of foreign currency translation to be less favorable in the quarter to be reported.
 
The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $4,134 million, reflecting an expected increase of 8.6% from the year-ago quarter.

For the company’s Industrial Coatings unit, segment income is expected to increase 4.2% sequentially as the Zacks Consensus Estimate is $275 million for the second quarter. The same for the Performance Coatings segment is pegged at $432 million, reflecting an expected rise of 4.6% on a sequential comparison basis.
 
PPG Industries is pursuing significant restructuring actions that are mainly focused on regions and end-use markets with the weakest business conditions to improve cost structure. The restructuring actions are expected to deliver around $125 million in annual savings, with $50 million of savings already realized in 2017. The company also remains focused on earnings accretion through ongoing cash deployment. It continues to expect to deploy at least $2.4 billion cash in acquisitions and share repurchases in 2018.

However, some of the company’s end markets including wood and marine still remain sluggish. PPG Industries is also exposed to raw materials cost pressure that is expected to affect its margins in the second quarter. It saw mid-single-digit percentage year over year increase in raw material costs in the first quarter. Nevertheless, the company is managing costs and implementing appropriate pricing actions to counter the impact of raw material cost inflation.

PPG Industries, Inc. Price and EPS Surprise

 

PPG Industries, Inc. Price and EPS Surprise | PPG Industries, Inc. Quote

Earnings Whispers
 
Our proven model does not 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 -0.02%. The Zacks Consensus Estimate for the second quarter is $1.89. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: PPG Industries carries a Zacks Rank #3, which coupled with a negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks to Consider
 
Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Celanese Corporation (CE - Free Report) has an Earnings ESP of +3.60% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Eastman Chemical Company (EMN - Free Report) has an Earnings ESP of +2.27% and carries a Zacks Rank #2.  
 
Ingevity Corporation (NGVT - Free Report) has an Earnings ESP of +9.14% and carries a Zacks Rank #2.  

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