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Category: Stock Market and PPG Industries
Date: 9 October 2019 Stock Price: $121.35 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of PPG Industrie a painting and coatings supplier across various industries including the aviation, automotive and shipping industries.
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About PPG Industries
At PPG (NYSE:PPG), we work every day to develop and deliver the paints, coatings and materials that our customers have trusted for more than 135 years. Through dedication and creativity, we solve our customers’ biggest challenges, collaborating closely to find the right path forward. With headquarters in Pittsburgh, we operate and innovate in more than 70 countries and reported net sales of $15.4 billion in 2018. We serve customers in construction, consumer products, industrial and transportation markets and aftermarkets.
Overview of PPG's latest earnings report
Data below is reported for the latest quarter unless stated otherwise
- Net sales: $4.024 billion (down from $4.131 billion for the same quarter of the previous year)
- Net sales decreased by -2.59% over the last 12 months
- Cost of sales: $2.288 billion (up from $2.379 billion for the same quarter of the previous year)
- Cost of sales decreased by -3.82% over the last 12 months
- Net income: $272 million (down from $371 million for the same quarter of the previous year)
- Diluted earnings per share: $1.14 (up from $1.51 for the same quarter of the previous year)
- PE ratio: 24.6
- Diluted weighted-average shares outstanding: 238.3 million (down from 246.4 million for the same quarter of the previous year)
- Cash and cash equivalents: $963 million
- Cash and cash equivalents per share: $4.04
- Cash and cash equivalents makes up 3.59% of PPG's market capital
- Cash and cash equivalents makes up 14.35% of PPG's current assets
- Receivables: $3.332 billion
- Receivables makes up 12.3% of PPG's current assets
- Inventories: $1.945 billion
- Inventories makes up 28.9% of PPG's current assets
PPG's management commentary on the results and outlook
PITTSBURGH, July 18, 2019 – PPG (NYSE:PPG) today reported second quarter 2019 net sales of approximately $4 billion, down nearly 3% versus the prior year. Net sales in constant currencies were about 1% higher than the prior year driven by higher selling prices of more than 2%. Sales volumes were down about 4% versus the prior year in aggregate, including about 1.5% stemming from the previously announced U.S. architectural coatings customer-assortment changes. Unfavorable foreign currency translation impacted net sales by more than 3%, or about $130 million, and acquisition-related sales, net of divestitures, added more than 2% to sales growth.
“We remain committed to recovering our operating margins and in the quarter delivered higher gross profit and segment operating margins compared to the prior year. This is despite weak global industrial production which impacted all major regions and several of our end-use markets including our general industrial and automotive OEM coatings businesses,” said Michael H. McGarry, PPG chairman and chief executive officer. “We continued to benefit from solid growth in several of our businesses, including aerospace and protective and marine coatings. “
We were able to manage through the more challenging business environment with improved selling prices and continued, strong cost management,” said McGarry. “In reflection of the economic backdrop and to further strengthen our cost position, we announced and began to implement a new cost management program in the second quarter, and we expect the program to deliver $125 million of savings upon completion. Also, we are quickly integrating our recent acquisitions of SEM, Whitford and Hemmelrath, with each exceeding early expectations.
“As we look ahead to the third quarter, we expect industry demand in many of our businesses to remain sluggish. We expect the momentum of our margin recovery to continue as we work with our customers and suppliers to further offset the multi-year raw material cost inflation we have experienced. We will also remain focused on aggressively managing our businesses, including achieving our target of fully offsetting the earnings impact from the prior year architectural coatings customer assortment changes. Lastly, we continue to have strong financial flexibility and will remain disciplined in our cash deployment with a focus on long-term shareholder value creation.
"We currently expect third quarter earnings per diluted share to be in the range of $1.57 to $1.67,” McGarry added. “We reaffirm our full year 2019 adjusted earnings-per-share growth of 7% to 10% and expect full-year sales growth of a low-single-digit percentage, both excluding currency translation impacts.”
“We remain committed to recovering our operating margins and in the quarter delivered higher gross profit and segment operating margins compared to the prior year. This is despite weak global industrial production which impacted all major regions and several of our end-use markets including our general industrial and automotive OEM coatings businesses,” said Michael H. McGarry, PPG chairman and chief executive officer. “We continued to benefit from solid growth in several of our businesses, including aerospace and protective and marine coatings. “
We were able to manage through the more challenging business environment with improved selling prices and continued, strong cost management,” said McGarry. “In reflection of the economic backdrop and to further strengthen our cost position, we announced and began to implement a new cost management program in the second quarter, and we expect the program to deliver $125 million of savings upon completion. Also, we are quickly integrating our recent acquisitions of SEM, Whitford and Hemmelrath, with each exceeding early expectations.
“As we look ahead to the third quarter, we expect industry demand in many of our businesses to remain sluggish. We expect the momentum of our margin recovery to continue as we work with our customers and suppliers to further offset the multi-year raw material cost inflation we have experienced. We will also remain focused on aggressively managing our businesses, including achieving our target of fully offsetting the earnings impact from the prior year architectural coatings customer assortment changes. Lastly, we continue to have strong financial flexibility and will remain disciplined in our cash deployment with a focus on long-term shareholder value creation.
"We currently expect third quarter earnings per diluted share to be in the range of $1.57 to $1.67,” McGarry added. “We reaffirm our full year 2019 adjusted earnings-per-share growth of 7% to 10% and expect full-year sales growth of a low-single-digit percentage, both excluding currency translation impacts.”
PPG Industries (NYSE: PPG) stock price history
The image below, obtained from Google, shows the stock price history of PPG Industries over the last 5 years. And it's been a very volatile but overall pretty good time for PPG stockholders. 5 years ago it was trading at $91.70 and its currently trading at around $112.35 a stock. That's a return of 22.5% provided to PPG stockholders over the last 5 years. While the returns aren't bad the opportunity cost of holding PPG stock that made just 22.5% over the last 5 years compared to holding Netflix for example that made over 300% becomes very significant. The stock of PPG is trading at a lot closer to its 52 week high of $121.29 than it is to its 52 week low of $94.37 which to us is a clear indication that the short term sentiment and momentum of PPG's stock is fairly positive at this point in time.
Recent coverage of PPG Industries
The extract below discusses PPG's announcement that it extended its partnership with the National Hockey League that has PPG as the official paint of the NHL as obtained from TheStreet.com
PPG (NYSE: PPG) and the National Hockey League (NHL®) today announced a three-year extension of their partnership, with PPG continuing its status as the Official Paint of the NHL in the U.S. and Canada. Financial details and terms were not disclosed. In addition, all official game pucks in the 2019-2020 NHL season will include a color-changing thermochromic coating. Developed closely with PPG suppliers LCR Hallcrest and QCR Solutions Corporation, the advanced coatings change from purple to clear when a puck's temperature is above freezing, providing a visual indication to officials that the puck should be replaced. "We're proud to continue combining the power of the NHL with PPG and its well-known consumer paint brands, including PPG PAINTS™, DULUX® paint, SICO® paint, GLIDDEN® paint and OLYMPIC® stains," said Bryan Iams, PPG vice president, corporate and government affairs. "Through the extended partnership, PPG will continue to identify ways to integrate its game-changing technologies into hockey and continue to build upon our partnerships with the NHL." "We are excited to extend our partnership with PPG, a leader in the paint industry and committed NHL partner that activates across many levels of our game," said Evin Dobson, NHL group vice president, partnership marketing.
PPG (NYSE: PPG) and the National Hockey League (NHL®) today announced a three-year extension of their partnership, with PPG continuing its status as the Official Paint of the NHL in the U.S. and Canada. Financial details and terms were not disclosed. In addition, all official game pucks in the 2019-2020 NHL season will include a color-changing thermochromic coating. Developed closely with PPG suppliers LCR Hallcrest and QCR Solutions Corporation, the advanced coatings change from purple to clear when a puck's temperature is above freezing, providing a visual indication to officials that the puck should be replaced. "We're proud to continue combining the power of the NHL with PPG and its well-known consumer paint brands, including PPG PAINTS™, DULUX® paint, SICO® paint, GLIDDEN® paint and OLYMPIC® stains," said Bryan Iams, PPG vice president, corporate and government affairs. "Through the extended partnership, PPG will continue to identify ways to integrate its game-changing technologies into hockey and continue to build upon our partnerships with the NHL." "We are excited to extend our partnership with PPG, a leader in the paint industry and committed NHL partner that activates across many levels of our game," said Evin Dobson, NHL group vice president, partnership marketing.
PPG Industries (NYSE: PPG) latest stock valuation
So what is PPG's stock worth based on the release of their latest earnings report? Based on PPG's latest earnings report provided our valuation model provides a target (full value) price at $92.60 a PPG stock. We therefore believe that the stock is overvalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $92.60. Therefore we see a good entry point into PPG's stock at $83.40 or below. We expect the stock of PPG to pull back from current levels in coming weeks and months to more realistic valuation levels closer to our target price for PPG Industries.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $92.60. Therefore we see a good entry point into PPG's stock at $83.40 or below. We expect the stock of PPG to pull back from current levels in coming weeks and months to more realistic valuation levels closer to our target price for PPG Industries.