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PPG Industries (PPG) Beats on Q2 Earnings, Lags Revenues
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PPG Industries (PPG - Free Report) reported adjusted net income of $498 million or $1.85 per share for the second quarter of 2016. With a 10.8% improvement from the year-ago adjusted earnings of $1.67 a share, this is the fourteenth straight quarter in which the company has reported a double-digit increase in adjusted earnings per share. Adjusted earnings per share also beat the Zacks Consensus Estimate of $1.84 by a penny.
The earnings growth can be attributed to innovative new products being successfully commercialized, strong business and cost management as well as earnings-accretive cash deployment.
The company recorded some non-recurring charges in the quarter. Net income including charges was $370 million or $1.37 per share.
Net sales in the quarter were fairly consistent year over year at $4,064 million. In local currencies, sales rose more than 1%. Acquisitions contributed over 1% to total sales. Sales volume and selling price were fairly consistent year over year. Sales, however, lagged the Zacks Consensus Estimate of $4,155 million. Unfavorable currency translation weighed on net sales.
Performance Coatings: This segment recorded $2.34 billion sales and $428 million income. Sales at the segment fell 3% year over year. The figure was down less than 1% in local currencies also. Currency translation reduced segment sales by about $60 million or more than 2%. Acquisition-related sales amounted to $25 million.
Benefits from restructuring and emphasis on cost-management helped segment earnings to grow but were partially offset by lower sales volume. Sales volume of architectural coatings-EMEA, protective and marine coatings declined due to weather patterns in Western Europe and end-use market weakness, respectively. On the other hand, aerospace sales volume increased.
Industrial Coatings: Sales at the segment were $1.44 billion, up 2.3% from the prior-year period and more than 4% in local currencies. Total sales volume grew over 3%, with all products witnessing a rise in sales volume. New technology in packaging coatings drove sales volume by mid-high single digits in every region.
Net income for the segment was $292 million, up 12.3% year over year. The improvement was largely driven by higher income leverage from growth in sales volume and lower costs from restructuring and manufacturing cost efficiencies as well as acquisition-related income.
Glass Segment: Sales were up 1.1% at $282 million. Improved average selling price partly offset unfavorable currency translation. The fiber glass industry grew modestly by varying degrees in each region. The segment’s income was 16.2% higher year over year at $43 million. Higher net sales and benefits of cost improvements were partially set off by a $3 million flat glass facility repair and startup related expenditure as well as lower equity earnings from Asian joint ventures.
Financial Position
PPG Industries ended the quarter with a cash balance of $1,605 million, up 127% year over year. Long-term debt was up 5.2% year over year to $4,426 million.
In the second quarter, PPG Industries announced the sale of its European fiber glass business as well as completed the sale of its minority ownership interest in Pittsburg Glass Works and acquisition of MetoKote. The company spent $800 million to fund its portion of the Pittsburgh Corning Asbestos Settlement Trust. No shares were repurchased in the quarter to benefit from a 5.5% per annum prepayment discount on all future trust-funding requirements.
Outlook
PPG Industries remains committed to deliver higher organic growth, including continued commercialization of its innovative, industry-leading coatings technologies. The reported quarter saw increased growth in Europe, Asia and Latin America. The company anticipates overall volume growth in the third quarter as it will begin receiving benefits of growth initiatives undertaken in the past.
As in the past, emphasis on reducing costs remains for the coming quarters and the company aims to complete its previously started restructuring program. PPG Industries has reaffirmed its plans to deploy $2–$2.5 billion cash over 2015–2016 toward acquisitions and share repurchases, and has already spent $1.6 billion toward the same. The company looks to expedite cash deployment in the second half of 2016 and expects to spend close to the upper end of the guidance.
PPG Industries currently carries a Zack Rank #3 (Hold).
Some better-ranked companies in the diversified chemical space include Axiall Corporation and Huntsman Corporation (HUN - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) as well as FMC Corp. (FMC - Free Report) , holding a Zacks Rank #2 (Buy).
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PPG Industries (PPG) Beats on Q2 Earnings, Lags Revenues
PPG Industries (PPG - Free Report) reported adjusted net income of $498 million or $1.85 per share for the second quarter of 2016. With a 10.8% improvement from the year-ago adjusted earnings of $1.67 a share, this is the fourteenth straight quarter in which the company has reported a double-digit increase in adjusted earnings per share. Adjusted earnings per share also beat the Zacks Consensus Estimate of $1.84 by a penny.
The earnings growth can be attributed to innovative new products being successfully commercialized, strong business and cost management as well as earnings-accretive cash deployment.
The company recorded some non-recurring charges in the quarter. Net income including charges was $370 million or $1.37 per share.
Net sales in the quarter were fairly consistent year over year at $4,064 million. In local currencies, sales rose more than 1%. Acquisitions contributed over 1% to total sales. Sales volume and selling price were fairly consistent year over year. Sales, however, lagged the Zacks Consensus Estimate of $4,155 million. Unfavorable currency translation weighed on net sales.
Segment Review
Performance Coatings: This segment recorded $2.34 billion sales and $428 million income. Sales at the segment fell 3% year over year. The figure was down less than 1% in local currencies also. Currency translation reduced segment sales by about $60 million or more than 2%. Acquisition-related sales amounted to $25 million.
Benefits from restructuring and emphasis on cost-management helped segment earnings to grow but were partially offset by lower sales volume. Sales volume of architectural coatings-EMEA, protective and marine coatings declined due to weather patterns in Western Europe and end-use market weakness, respectively. On the other hand, aerospace sales volume increased.
Industrial Coatings: Sales at the segment were $1.44 billion, up 2.3% from the prior-year period and more than 4% in local currencies. Total sales volume grew over 3%, with all products witnessing a rise in sales volume. New technology in packaging coatings drove sales volume by mid-high single digits in every region.
Net income for the segment was $292 million, up 12.3% year over year. The improvement was largely driven by higher income leverage from growth in sales volume and lower costs from restructuring and manufacturing cost efficiencies as well as acquisition-related income.
Glass Segment: Sales were up 1.1% at $282 million. Improved average selling price partly offset unfavorable currency translation. The fiber glass industry grew modestly by varying degrees in each region. The segment’s income was 16.2% higher year over year at $43 million. Higher net sales and benefits of cost improvements were partially set off by a $3 million flat glass facility repair and startup related expenditure as well as lower equity earnings from Asian joint ventures.
Financial Position
PPG Industries ended the quarter with a cash balance of $1,605 million, up 127% year over year. Long-term debt was up 5.2% year over year to $4,426 million.
In the second quarter, PPG Industries announced the sale of its European fiber glass business as well as completed the sale of its minority ownership interest in Pittsburg Glass Works and acquisition of MetoKote. The company spent $800 million to fund its portion of the Pittsburgh Corning Asbestos Settlement Trust. No shares were repurchased in the quarter to benefit from a 5.5% per annum prepayment discount on all future trust-funding requirements.
Outlook
PPG Industries remains committed to deliver higher organic growth, including continued commercialization of its innovative, industry-leading coatings technologies. The reported quarter saw increased growth in Europe, Asia and Latin America. The company anticipates overall volume growth in the third quarter as it will begin receiving benefits of growth initiatives undertaken in the past.
As in the past, emphasis on reducing costs remains for the coming quarters and the company aims to complete its previously started restructuring program. PPG Industries has reaffirmed its plans to deploy $2–$2.5 billion cash over 2015–2016 toward acquisitions and share repurchases, and has already spent $1.6 billion toward the same. The company looks to expedite cash deployment in the second half of 2016 and expects to spend close to the upper end of the guidance.
PPG INDS INC Price, Consensus and EPS Surprise
PPG INDS INC Price, Consensus and EPS Surprise | PPG INDS INC Quote
Zacks Rank
PPG Industries currently carries a Zack Rank #3 (Hold).
Some better-ranked companies in the diversified chemical space include Axiall Corporation and Huntsman Corporation (HUN - Free Report) , both sporting a Zacks Rank #1 (Strong Buy) as well as FMC Corp. (FMC - Free Report) , holding a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>