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Why Is PPG Industries (PPG) Up 6.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for PPG Industries (PPG - Free Report) . Shares have added about 6.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PPG Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

PPG Industries’ Q3 Earnings Beat, Sales Trail Estimates

PPG Industries logged net income from continuing operations of $366 million or $1.54 per share in third-quarter 2019 compared with $368 million or $1.51 per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) were $1.67, up from $1.45 in the prior-year quarter. The figure beat the Zacks Consensus Estimate of $1.61. 

Net sales edged up around 0.2% year over year to $3,826 million in the reported quarter. However, the figure missed the Zacks Consensus Estimate of $3,896.7 million. Unfavorable currency swings affected net sales by around 2% while acquisition-related sales, net of divestitures, contributed more than 2% to sales growth and higher selling prices contributed 2.6%.

Segment Highlights

Performance Coatings: Net sales in the segment amounted to roughly $2.3 billion in the third quarter, up around 1% year over year. Sales volume in the segment was relatively flat year over year. Unfavorable foreign currency translation reduced net sales by roughly 2%.

Segment income rose roughly 15% year over year to $380 million. The figure benefitted from higher selling prices, cost management and restructuring initiatives of the company.

Industrial Coatings: Sales in the segment totaled $1.5 billion, down nearly 1% from the prior-year quarter’s figure. Increased selling prices of 2% and acquisition-related sales of around $80 million were offset by lower sales volumes of 6%. Also, unfavorable foreign currency translation lowered sales by nearly 2% on a year-over-year basis.

Net income in the segment totaled $205 million, up around 22% year over year. Improving selling prices, acquisition-related income and strong cost management actions were partly offset by reduced sales volumes. Unfavorable currency impact was around $3 million.

Financial Position

PPG Industries ended the quarter with cash and cash equivalents of $1.4 billion, up around 29.8% year over year. Long-term debt fell around 2.7% year over year to $4,885 million.

Outlook

Going forward, PPG Industries expects global economic growth to remain soft in the fourth quarter and impact several end-use markets.

For 2019, the company expects adjusted EPS in the range of $6.17-$6.27. The projection includes fourth quarter year-over-year growth in constant currencies of around 15% at the mid-point. Moreover, the guidance represents adjusted EPS growth at the low-to-mid end of earlier announced 7-10% range, excluding currency translation impacts.

The company expects full-year sales growth of a low-single-digit percentage, which excludes currency-translation impacts.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, PPG Industries has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PPG Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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