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Why Is PPG Industries (PPG) Down 5.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for PPG Industries (PPG). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PPG Industries due for a breakout? 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 catalysts.

PPG Industries' Q4 Earnings Miss, Sales Beat Estimates

PPG Industries has delivered net income from continuing operations of $295 million or $1.23 per share in fourth-quarter 2019, up from the year-ago quarter’s profit of $256 million or $1.07.

Barring one-time items, adjusted earnings were $1.31 per share in the reported quarter, up 13.9% from $1.15 logged in the year-ago quarter. However, the figure trailed the Zacks Consensus Estimate of $1.35.

Net sales inched up 0.7% year over year to $3,672 million. The figure beat the Zacks Consensus Estimate of $3,662.2 million. Unfavorable currency swings affected net sales by around 1%. The company recorded net sales growth in constant currencies of about 2% on a year-over-year basis, supported by a rise in selling prices of nearly 2%. Sales volumes fell nearly 3% year over year.

2019 Results

In 2019, the company posted profits from continuing operations of $1,243 million or $5.22 per share, down from $1,323 or $5.40 in 2018. Adjusted earnings per share (EPS) for the year came in at $6.22, up around 5% from $5.92 a year ago.

PPG Industries generated revenues of $15,146 million in 2019, down 1.5% from $15,374 million in 2018. Unfavorable foreign currency translation negatively impacted sales by around 3%. Organic sales fell nearly 1%.

Segment Highlights

Performance Coatings: Net sales in the segment amounted to nearly $2.2 billion in the fourth quarter, up 2% year over year. Sales volume in the segment was relatively flat on a year-over-year basis. Unfavorable foreign currency translation lowered net sales by less than 1%.

Segment income rose 17.6% year over year to $307 million. The benefits of cost management and higher selling prices were partly offset by general cost inflation.

Industrial Coatings: Sales in the segment totaled nearly $1.5 billion, down 1% from the prior-year quarter’s tally. The benefits of higher selling prices were offset by 6% decline in sales volume. Also, unfavorable foreign currency translation lowered sales by around 1% on a year-over-year basis.

Net income in the segment totaled $203 million, up around 9% year over year. Better selling prices, acquisition-related income and strong cost management actions were partly offset by reduced sales volumes as well as general cost inflation. Unfavorable currency impact was $2 million.

Financial Position

PPG Industries ended 2019 with cash and cash equivalents of $1.2 billion, up around 34.8% year over year. Long-term debt rose around 4% year over year to $4,539 million.

For 2019, the company has returned around $800 million to shareholders, which includes roughly $325 million of share repurchases and nearly $470 million in dividends.

Outlook

Going forward, PPG Industries expects organic growth to continue in the Performance Coatings unit in 2020. For the Industrial Coatings unit, the company expects a rebound in volume growth in second-half 2020.

While the company is beginning to witness a modest recovery in industrial demand in China, it expects soft general industrial demand to continue in the United States and Europe.

For 2020, the company projects adjusted EPS growth between 4% and 9%, which excludes the impact of currency translation. First-quarter 2020 earnings per share from continuing operations are projected in the range $1.32-$1.42.

The company expects sales growth in the range of 1 (on constant currencies basis), including acquisitions.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.96% due to these changes.

VGM Scores

Currently, PPG Industries has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, 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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