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PPG Industries (PPG) Down 4.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for PPG Industries (PPG - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PPG Industries due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

PPG Industries Tops Earnings & Sales Estimates in Q4

PPG Industries logged net income from continuing operations of $272 million or $1.14 per share in fourth-quarter 2020, down from the year-ago quarter’s profit of $295 million or $1.23 per share.

Barring one-time items, adjusted earnings were $1.59 per share in the reported quarter, up from $1.31 logged in the year-ago quarter. The figure also topped the Zacks Consensus Estimate of $1.57.

Net sales rose roughly 2% year over year to $3,757 million. The figure surpassed the Zacks Consensus Estimate of $3,561.6 million. Sales volumes were down around 1.5% year over year, reflecting the impacts of the coronavirus pandemic in certain markets. Selling prices rose 1.5%.

The company benefited from higher year-over-year sales in its Industrial Coatings segment in the quarter, led by the automotive original equipment manufacturer, general industrial and packaging coatings businesses. It also witnessed strength in its global architectural coatings business.

FY20 Results

Adjusted earnings for full-year 2020 fell roughly 8% year over year to $5.70 per share, while net sales dropped 9% to $13.8 billion.

Segment Highlights

Performance Coatings: Net sales in the segment was around $2.2 billion in the fourth quarter, down around 1% year over year. Sales volume in the segment declined around 6% mainly due to lower demand resulting from the pandemic. Selling prices rose around 3%.

Segment income fell 3% year over year to $299 million. The downside was due to reduced sales volumes, partly offset by higher selling prices, restructuring initiatives and cost-mitigation efforts.

Industrial Coatings: Sales in the segment totaled around $1.6 billion, up around 7% from the prior-year quarter’s figure. Sales volumes rose 5% year over year due to improved demand for automotive and general industrial coatings. Selling prices were flat year over year.

Net income in the segment totaled $282 million, up around 40% year over year. Results were driven by restructuring cost savings, higher sales volumes and favorable currency impact.

Financials

PPG Industries ended 2020 with cash and cash equivalents of $1,826 million, up roughly 50% year over year. Long-term debt rose around 14% year over year to $5,171 million.

The company generated record operating cash flow of about $2.1 billion for the full year. PPG Industries also paid around $500 million in dividends in 2020.

Outlook

Going forward, the company expects overall global coatings demand to continue to improve in many of its end-use markets and across all of its major regions. It expects overall global economic activities to strengthen in first-half 2021.

The company expects to gain from volume recovery in its technology-advantaged automotive refinish and aerospace coatings businesses, synergy realization and earnings accretion through integration of recently announced acquisitions and an eventual inventory restocking in specific industrial end markets.

Factoring in current global economic activities and the near-term economic uncertainty associated with the pandemic, PPG Industries expects total sales volume for the first quarter of 2021 to be flat to modestly higher, differing by business and region.

PPG Industries also expects to achieve total incremental cost benefits from restructuring measures of $30-$35 million in the first quarter.

The company also sees adjusted earnings for the first quarter to be $1.55-$1.61 per share. The mid-point of this range indicates an increase of more than 20% over the comparable year-ago figure of $1.31.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.19% due to these changes.

VGM Scores

Currently, PPG Industries has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise PPG Industries has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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