PPG Industries Inc. (PPG - Free Report) is gaining from its cost cutting and restructuring initiatives, pricing actions and strategic acquisitions amid headwinds including raw materials cost inflation and unfavorable currency translation.
Shares of the paints giant, which currently carries a Zacks Rank #3 (Hold), have gained 14.4% so far this year, outperforming its industry’s 18.5% decline.
What’s Going in PPG’s Favor?
PPG Industries has a diversified business, in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets. The company is aggressively managing costs and is also implementing appropriate price increase actions.
PPG Industries is executing significant restructuring actions to improve cost structure. The restructuring actions delivered savings of roughly $80 million in 2018. These actions also delivered savings of more than $20 million during the first quarter. The company expects to achieve roughly $70 million in cost savings in 2019.
The company, last month, also noted that it has identified certain opportunities to further improve the operating efficiency and also sustain commercial excellence. It is finalizing a new cost-savings program, which targets full-year run-rate savings of roughly $125 million once fully implemented.
The new program is expected to include manufacturing optimization, targeted pruning of low profit business, exiting some smaller product lines that are below profitability expectations, reorganizing certain business unit cost structures on the basis of current economic climate and minimize redundancy actions associated with recent acquisitions.
The company is also undertaking steps to grow business inorganically. PPG Industries, earlier this year, completed the acquisitions of Whitford Worldwide and Hemmelrath. The company expects that its three recently announced and completed buyouts will add around $400 million in annualized revenues. The buyouts will also provide the company with a broader range of technology and products to grow business.
A Few Headwinds
PPG Industries faces cost pressure associated with raw materials and logistics. The company witnessed persistent raw material cost inflation in the first quarter, marking the 10th straight quarter of year-over-year increase. The inflationary impacts are expected to continue through the first half of 2019. The company also faces headwinds from logistics cost inflation.
Moreover, the company faces headwinds from unfavorable currency translation. It witnessed currency headwinds in the first quarter due to the strengthening of the U.S. dollar. Currency swings reduced its sales by more than 4% or around $160 million in the quarter. The company expects unfavorable currency impact of $130-$150 million on sales and 5-7 cents per share on earnings in the second quarter.
The company also expects to incur charges in the range of $185-$200 million (barring certain non-cash items) related to its restructuring actions in the second quarter.
The company is also exposed to challenges from sluggish global industrial activities. It expects subdued global economic activity in the second quarter. The company also envisions general industrial demand to be modest and uneven by end market and region in the quarter.
Stocks Worth a Look
A few better-ranked stocks worth considering in the basic materials space include Materion Corporation (MTRN - Free Report) , Israel Chemicals Ltd. (ICL - Free Report) and Innospec Inc. .
Materion has an expected earnings growth rate of 27.3% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 15% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Israel Chemicals has an expected earnings growth rate of 13.5% for the current fiscal year and carries a Zacks Rank #2 (Buy). Its shares have gained around 7% in the past year.
Innospec has an expected earnings growth rate of 6.6% for the current year and carries a Zacks Rank #2. Its shares are up roughly 8% in the past year.
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