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Is PPG Industries (PPG) Set to Disappoint in Q3 Earnings?

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PPG Industries Inc. (PPG - Free Report) is set to release its third-quarter 2016 results before the market opens on Oct 20.

In the last quarter, the company delivered a positive earnings surprise of 0.54%. It saw higher profits in the quarter, aided by its cost-management initiatives and successful commercialization of innovative new products. PPG Industries has surpassed the Zacks Consensus Estimate in two of the trailing four quarters, with an average beat of 0.33%. 

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

What Lies Ahead? 

PPG Industries recently announced that it expects to post a loss from continuing operations of 74−77 cents per share on a reported basis in the third quarter due to pension settlement charges of $2.31 per share. The company recorded earnings from continuing operations of $1.52 per share on a reported basis a year ago. On an adjusted basis, the coatings giant expects earnings from continuing operations in the band of $1.54−$1.57 per share for the third quarter, compared with $1.54 per share recorded a year ago. PPG Industries also anticipates net sales of roughly $3.8 billion for the third quarter.

The company also said that it is considering potential actions to cut its overall cost structure. These are in addition to the restructuring program that the company announced last year.

Further, PPG Industries announced a share repurchase program, authorized by its board, worth $2 billion. This is in addition to the company’s existing share repurchase authorization that was approved in 2014 and had around $520 million remaining as of Sep 30, 2016. The new share repurchase authorization is effective immediately.

PPG Industries has deployed around $1.85 billion of cash on acquisitions and share buybacks, inclusive of share repurchases worth roughly $250 million completed during the third quarter of 2016, against its earlier stated target of $2−$2.5 billion for 2015 and 2016 combined.

PPG Industries faces a number of headwinds, stemming from a sluggish global economy. The company is facing weakness in the heavy-duty equipment market in the industrial coatings business. Moreover, softness in the marine new-build market, along with weak demand in the oil and gas end-use market, has been hurting protective and marine coatings’ sales. Commercial construction market in the U.S., although recovering lately, is also expected to remain sluggish in the near future.

PPG Industries’ earnings are also heavily exposed to unfavorable currency fluctuations. The company, in July, said that it expects an unfavorable currency impact of $320−$350 million (up from the previous expectation of $200−$260 million) on its sales and $50−$60 million (up from $30−$40 million expected earlier) on pre-tax earnings in full-year 2016.

PPG INDS INC Price and EPS Surprise


PPG INDS INC Price and EPS Surprise | PPG INDS INC Quote

Earnings Whispers

Our proven model does not conclusively show that PPG Industries is likely to beat estimates 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 0.00%. This is because the Most Accurate Estimate as well as the Zacks Consensus Estimate are both pegged at $1.56. 

Zacks Rank: PPG Industries 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 to Consider

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

The Chemours Company (CC - Free Report) has an Earnings ESP of +25.71% and a Zacks Rank #1.

Teck Resources Limited has Earnings ESP of +10% and carries a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.

The Dow Chemical Company has an Earnings ESP of +3.80% and a Zacks Rank #2.

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