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What's in the Offing for PPG Industries' (PPG) Q4 Earnings?

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PPG Industries Inc. (PPG - Free Report) is set to release fourth-quarter results before the opening bell on Jan 17.

Last quarter, the paint giant’s net income from continuing operations declined 6% year over year to $368 million or $1.51 per share. Adjusted earnings of $1.45 per share, however, beat the Zacks Consensus Estimate of $1.43, translating into a positive earnings surprise of 1.4%.

Net sales went up 1% year over year to $3,817 million, beating the Zacks Consensus Estimate of $3,792 million.

PPG Industries surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 0.3%.

PPG Industries has outperformed the industry in the past year. The company’s shares lost around 12.6% compared with a 26.4% decline recorded by the industry.



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

Factors at Play

PPG Industries, in its third-quarter call stated, it sees normal business seasonality in the fourth quarter. It also expects overall global economic growth to remain positive. The company witnessed higher industrial production volatility and inconsistency in emerging region growth rates during the third quarter and expects the same to continue in the fourth quarter. The company expects consistent quarterly sales trends on a sequential comparison basis in the fourth quarter. It projects fourth-quarter earnings per share in the range of $1.03-$1.13.

The Zacks Consensus Estimate for fourth-quarter revenues stands at $3,659 million, reflecting a decline of 4.1% from the prior quarter and a 0.6% drop year over year.

For the company’s Industrial Coatings unit, segment income is expected to increase 14% sequentially as the Zacks Consensus Estimate is at $192 million for the fourth quarter. However, Performance Coatings segment income is pegged at $248 million, reflecting a 25% drop on a sequential comparison basis.

PPG Industries is executing significant restructuring actions to improve cost structure. These are mainly focused on regions and end-use markets with the weakest business conditions. The company has initiated a restructuring program and expects to deliver annualized savings of roughly $85 million once it is fully implemented. Moreover, the company expects to achieve savings of around $20 million in the fourth quarter.

PPG Industries is also undertaking steps to grow business inorganically. Moreover, the company expects acquisitions (made during 2017-2018) to contribute to sales. The company aims to boost shareholders’ returns through cash deployment. It expects to deploy roughly $1 billion in the fourth quarter on acquisitions and share repurchases.
 
However, the company witnessed considerable raw material cost inflation and higher logistics costs in the third quarter, which includes the effects of increasing oil and higher epoxy resin prices. The company expects raw material inflation to persist in the fourth quarter, which is likely to affect margins.

PPG Industries faced headwinds from unfavorable currency translation in the third quarter due to strengthening of the U.S. dollar. The company expects currency swings to negatively impact sales at the Performance Coatings by $30-$40 million and Industrial Coatings by $15-$20 million in the fourth quarter. Overall, it expects currency-related impact of $50-$60 million on fourth-quarter sales.

PPG Industries, Inc. Price and EPS Surprise

 

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:

Earnings ESP: Earnings ESP for PPG Industries is currently pegged at 0.00%. The Zacks Consensus Estimate for fourth-quarter earnings is currently at $1.10. 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 #4 (Sell). Note that we caution against stocks with a Zacks Rank #4 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:

Newmont Mining Corporation (NEM - Free Report) has an Earnings ESP of +4.32% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Goldcorp Inc. has an Earnings ESP of +50% and carries a Zacks Rank #3.
 
LyondellBasell Industries N.V. (LYB - Free Report) has an Earnings ESP of +2.63% and carries a Zacks Rank #3.
 
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