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Will Higher Costs Dent PPG Industries' (PPG) Q3 Earnings?
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PPG Industries Inc. (PPG - Free Report) is set to release third-quarter 2018 results ahead of the bell on Oct 18.
Last quarter, the paint giant saw its profits from continuing operations drop roughly 25% year over year to $371 million or $1.51 per share. Adjusted earnings of $1.90 per share, however, beat the Zacks Consensus Estimate of $1.89, translating into a positive earnings surprise of 0.5%.
Net sales went up roughly 9% year over year to $4,131 million, beating the Zacks Consensus Estimate of $4,118 million.
PPG Industries surpassed the Zacks Consensus Estimate in two of the trailing four quarters, missed once and met expectations on the other occasion, delivering an average negative surprise of 0.1%.
The company has underperformed the industry year to date. While PPG Industries’ shares lost around 18.6% over this period, the industry saw a decline of roughly 15.7%. The company’s shares took a hit recently on its downbeat guidance for the third quarter.
Let’s see how things are shaping up for this announcement.
Factors at Play
PPG Industries faces cost pressure associated with raw materials and logistics that is likely to hurt its margins in the third quarter. Moreover, weak demand in China and unfavorable currency translation are also likely to affect its results.
PPG Industries recently provided updates for third-quarter financial results. The company expects earnings per share from continuing operations in the range of $1.47-$1.51 per share and adjusted earnings in the range of $1.41-$1.45 per share for the third quarter. The company also projects net sales to be roughly $3.8 billion for third-quarter 2018, flat year over year.
Notably, the projected adjusted earnings per share is lower than $1.90 in the second quarter of 2018 and $1.52 in the third quarter of 2017. The company expects adjusted tax rate between 20% and 21% in the third quarter.
The company witnessed considerable logistics and raw material cost inflation during the third quarter, which includes the effects of increasing oil and higher epoxy resin prices. Per PPG Industries, the increased inflationary impacts witnessed during the quarter resulted in the highest level of cost inflation since the cycle that started two years ago.
The company is aggressively managing costs (including accelerating restructuring activities) and is also implementing appropriate pricing actions to counter the impact of raw material cost inflation.
Meanwhile, PPG Industries noted that overall demand in China softened during the third quarter. Also, the company experienced weaker automotive refinish sales because several European and U.S. customers have high inventory levels due to lower demand in the end-use market.
According to PPG Industries, the impact from weak foreign currencies, mainly from emerging regions, led to a year-over-year decline of $15 million in income. The company stated that lower demand along with the currency effects impacted year-over-year earnings. It expects the trend to persist for the rest of 2018.
The company also expects growth in sales volume of roughly 2%, which excludes the negative impact from the customer assortment changes in the U.S. architectural coatings business. Additionally, it expects sequentially higher selling prices in the third quarter.
The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $3,792 million, reflecting an expected decrease of 8.2% from the sequentially prior quarter and roughly flat year over year.
For the company’s Industrial Coatings unit, segment income is expected to decrease 4.5% sequentially as the Zacks Consensus Estimate is $213 million for the third quarter. The same for the Performance Coatings segment is pegged at $368 million, reflecting an expected decline of 14% on a sequential comparison basis.
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:
Earnings ESP: Earnings ESP for PPG Industries is currently pegged at -0.07%. The Zacks Consensus Estimate for the third quarter is currently at $1.43. 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 #5 (Strong Sell). Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 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:
Albemarle Corporation (ALB - Free Report) has an Earnings ESP of +3.75% and carries a Zacks Rank #1.
Celanese Corporation (CE - Free Report) has an Earnings ESP of +0.62% and carries a Zacks Rank #2.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Will Higher Costs Dent PPG Industries' (PPG) Q3 Earnings?
PPG Industries Inc. (PPG - Free Report) is set to release third-quarter 2018 results ahead of the bell on Oct 18.
Last quarter, the paint giant saw its profits from continuing operations drop roughly 25% year over year to $371 million or $1.51 per share. Adjusted earnings of $1.90 per share, however, beat the Zacks Consensus Estimate of $1.89, translating into a positive earnings surprise of 0.5%.
Net sales went up roughly 9% year over year to $4,131 million, beating the Zacks Consensus Estimate of $4,118 million.
PPG Industries surpassed the Zacks Consensus Estimate in two of the trailing four quarters, missed once and met expectations on the other occasion, delivering an average negative surprise of 0.1%.
The company has underperformed the industry year to date. While PPG Industries’ shares lost around 18.6% over this period, the industry saw a decline of roughly 15.7%. The company’s shares took a hit recently on its downbeat guidance for the third quarter.
Let’s see how things are shaping up for this announcement.
Factors at Play
PPG Industries faces cost pressure associated with raw materials and logistics that is likely to hurt its margins in the third quarter. Moreover, weak demand in China and unfavorable currency translation are also likely to affect its results.
PPG Industries recently provided updates for third-quarter financial results. The company expects earnings per share from continuing operations in the range of $1.47-$1.51 per share and adjusted earnings in the range of $1.41-$1.45 per share for the third quarter. The company also projects net sales to be roughly $3.8 billion for third-quarter 2018, flat year over year.
Notably, the projected adjusted earnings per share is lower than $1.90 in the second quarter of 2018 and $1.52 in the third quarter of 2017. The company expects adjusted tax rate between 20% and 21% in the third quarter.
The company witnessed considerable logistics and raw material cost inflation during the third quarter, which includes the effects of increasing oil and higher epoxy resin prices. Per PPG Industries, the increased inflationary impacts witnessed during the quarter resulted in the highest level of cost inflation since the cycle that started two years ago.
The company is aggressively managing costs (including accelerating restructuring activities) and is also implementing appropriate pricing actions to counter the impact of raw material cost inflation.
Meanwhile, PPG Industries noted that overall demand in China softened during the third quarter. Also, the company experienced weaker automotive refinish sales because several European and U.S. customers have high inventory levels due to lower demand in the end-use market.
According to PPG Industries, the impact from weak foreign currencies, mainly from emerging regions, led to a year-over-year decline of $15 million in income. The company stated that lower demand along with the currency effects impacted year-over-year earnings. It expects the trend to persist for the rest of 2018.
The company also expects growth in sales volume of roughly 2%, which excludes the negative impact from the customer assortment changes in the U.S. architectural coatings business. Additionally, it expects sequentially higher selling prices in the third quarter.
The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $3,792 million, reflecting an expected decrease of 8.2% from the sequentially prior quarter and roughly flat year over year.
For the company’s Industrial Coatings unit, segment income is expected to decrease 4.5% sequentially as the Zacks Consensus Estimate is $213 million for the third quarter. The same for the Performance Coatings segment is pegged at $368 million, reflecting an expected decline of 14% on a sequential comparison basis.
PPG Industries, Inc. Price and EPS Surprise
PPG Industries, Inc. price-eps-surprise | PPG Industries, Inc. Quote
Earnings Whispers
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:
Earnings ESP: Earnings ESP for PPG Industries is currently pegged at -0.07%. The Zacks Consensus Estimate for the third quarter is currently at $1.43. 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 #5 (Strong Sell). Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 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:
CF Industries Holdings, Inc. (CF - Free Report) has an Earnings ESP of +12.07% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Albemarle Corporation (ALB - Free Report) has an Earnings ESP of +3.75% and carries a Zacks Rank #1.
Celanese Corporation (CE - Free Report) has an Earnings ESP of +0.62% and carries a Zacks Rank #2.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>