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PPG Updates on Optical JV

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PPG Industries Inc (PPG - Free Report) recently said that it is in talks with optical lenses giant Essilor International regarding the future of their joint venture, Transitions Optical. The joint venture, which was formed in 1990, is a leading supplier of photochromic lenses to optical makers globally.

PPG Industries holds a 51% stake in the joint venture with Essilor owning the balance. Transitions Optical represented a meaningful portion of PPG Industries’ Optical and Specialty Materials division revenues last year.

The Pennsylvania-based coatings giant hinted that its ongoing discussions with Essilor may lead to a structural change in the joint venture or possible stake sale. These potential outcomes may result from a negotiated transaction or exercise of contractual rights as defined by the joint venture agreement. PPG Industries said that the discussions may continue over the next several months.

PPG Industries, on January 14, reported higher revenues and profit for fourth-quarter 2012. Its adjusted earnings matched the Zacks Consensus Estimate while sales beat. Profit rose 5% year over year on the back of the company’s cost-saving measures. The company witnessed strong growth in its North American automotive OEM coatings business in the quarter.

Revenues from the company’s Optical and Specialty Materials segment rose 5% in the fourth quarter. The division accounted for roughly 8% of its total sales for 2012.

PPG Industries has a diversified business, both in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets. The company looks to grow its businesses strategically along with controlling costs.

PPG Industries is also taking steps to grow its business inorganically by making a number of acquisitions. Moreover, it is pursuing restructuring of its European operation, which is expected to fetch meaningful cost savings this year.

However, the European market is expected to remain under pressure and raw material inflation and currency headwinds remains concerns for the company.

PPG Industries, which competes with DuPont Performance Coatings segment of DuPont , retains a short-term Zacks Rank #2 (Buy). Currently, we have a long-term Neutral recommendation on the stock.

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