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PPG Industries (PPG) Poised on Acquisitions, Cost Reductions

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We issued an updated research report on PPG Industries, Inc. (PPG - Free Report) on Jan 25.

The company saw a roughly two-fold year over year jump in its net earnings from continuing operations to $184 million or 72 cents per share in fourth-quarter 2017. Adjusted earnings of $1.19 per share beat the Zacks Consensus Estimate of $1.18.
Net sales rose around 8% year over year to $3,682 million and also came ahead of the Zacks Consensus Estimate of $3,605 million. The company gained from favorable currency translation in the quarter.

PPG Industries, which is among the prominent names in the chemicals space along with Eastman Chemical Company (EMN - Free Report) , Air Products and Chemicals, Inc. (APD - Free Report) and Celanese Corporation (CE - Free Report) , is taking steps for growing organically as well as cutting costs. The company also remains committed to deploy cash on acquisitions and share repurchases.

PPG Industries expects acquisitions to contribute sales of roughly $125 million in 2018. The company recently agreed to acquire Netherlands-based leading architectural paint and coatings wholesaler, ProCoatings. Through its network of 23 multi-brand stores, ProCoatings distributes a large portfolio of professional paint brands across the Netherlands. The transaction is expected to close in first-quarter 2018, subject to customary closing conditions.

To improve its cost structure, PPG Industries is pursuing significant restructuring actions mainly focused on regions and end-use markets with the weakest business conditions. The restructuring actions are expected to deliver around $125 million in annual savings, with roughly $50 million of savings already realized in 2017 and another $45-$50 million is expected in 2018.

PPG Industries also has an impressive record of returning cash to shareholders through dividends and share buybacks. The company returned roughly $1.2 billion to its shareholders in the form of dividend and share repurchases in 2017. The company repurchased shares worth more than $800 million last year.

The company, in its fourth-quarter call, said that it is committed towards deploying at least $2.4 billion of cash in 2018 on acquisitions and share repurchases as part of its earlier communicated goal of deploying $3.5 billion in 2017 and 2018 combined.

However, PPG Industries is exposed to raw materials cost pressure. The company is seeing higher raw materials costs and it is implementing pricing strategies to offset the impact of the inflation. The company expects raw material inflation to continue through first-half 2018.

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