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Will PPG Industries (PPG) Disappoint This Earnings Season?

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PPG Industries Inc. (PPG - Free Report) is set to release first-quarter 2018 results ahead of the bell on Apr 19.
 
Last quarter, the company reported net earnings from continuing operations of $184 million or 72 cents per share for fourth-quarter 2017, a roughly two-fold increase from the year-ago figure of $91 million or 34 cents. Adjusted earnings were $1.19 per share that surpassed the Zacks Consensus Estimate of $1.18. Net sales increased 7.8% year over year to $3,682 million, beating the Zacks Consensus Estimate of $3,605 million.
 
PPG Industries surpassed the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 1.25%.
 
However, the company underperformed the industry over a year. While PPG Industries’ shares have moved up around 6.7%, the industry gained roughly 11.8%. 
 
 
 
 
Let’s see how things are shaping up for this announcement.
 
Factors at Play
 
PPG Industries, in its fourth-quarter call, said that it anticipates additional selling price to increase this year. The company is committed toward deploying at least $2.4 billion of cash in 2018 backed by acquisitions and share repurchases as part of its earlier communicated goal of deploying $3.5 billion in 2017 and 2018 combined. The company expects its effective tax rate to be in the range of 23-24% for 2018.
 
The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $3,723 million, reflecting an increase of 4.3% from the year-ago quarter.
 
For the company’s the Industrial Coatings segment, the Zacks Consensus Estimate for net sales is expected to be $1,564 million for the first quarter, reflecting an estimated 0.4% rise on a sequential basis. Segment income is also expected to increase 19.8% sequentially as the Zacks Consensus Estimate is $254 million for the first quarter.
 
Net sales for PPG Industries’ Performance Coatings segment, for the first quarter is expected to witness a 1.6% rise from the previous quarter. The Zacks Consensus Estimate for first-quarter revenues for the unit is pegged at $2,158 million. Segment income is also expected to increase 16.2% sequentially as the Zacks Consensus Estimate is pegged at $302 million for the first quarter. 
 
PPG Industries is pursuing significant restructuring actions that are mainly focused on regions and end-use markets with the weakest business conditions to improve cost structure. The restructuring activities are projected to deliver around $125 million in annual savings with roughly $50 million of savings already realized in 2017 and another $45-$50 million expected in 2018.
 
PPG Industries is also implementing appropriate pricing strategies to offset the impact of raw materials cost inflation. The company anticipates raw material inflation to continue through first-half 2018, which may affect its margins.
 
Moreover, the company expects one fewer shipping day in the first quarter to lower sales by $20-$25 million in the Performance Coatings unit in the quarter, mostly in architectural coatings.

PPG Industries, Inc. Price and EPS Surprise
 
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:
 
Zacks ESP: Earnings ESP for PPG Industries is currently pegged at -1.92%. This is because the Most Accurate estimate is $1.38 while the Zacks Consensus Estimate is pegged at $1.41. 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:
 
Allegheny Technologies Incorporated (ATI - Free Report) has an Earnings ESP of +9.38% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
FMC Corporation (FMC - Free Report) has an Earnings ESP of +1.43% and carries a Zacks Rank #2.  
 
Kinross Gold Corporation (KGC - Free Report) has an Earnings ESP of +18.75% and carries a Zacks Rank #3.  
 
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