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Category: Stock Market and PPG Industries
Date: 21 October 2019 Stock Price: $124.23 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of PPG Industries 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: $3.826 billion (down from $3.817 billion for the same quarter of the previous year)
- Net sales increased by 0.23% over the last 12 months
- Cost of sales: $2.181 billion (up from $2.253 billion for the same quarter of the previous year)
- Cost of sales decreased by -3.19% over the last 12 months
- Net income: $367 million (down from $378 million for the same quarter of the previous year)
- Diluted earnings per share: $1.55 (up from $1.56 for the same quarter of the previous year)
- PE ratio: 20.03
- Diluted weighted-average shares outstanding: 238.5 million (down from 243.6 million for the same quarter of the previous year)
- Cash and cash equivalents: $1.432 billion
- Cash and cash equivalents per share: $6
- Cash and cash equivalents makes up 4.83% of PPG's market capital
- Cash and cash equivalents makes up 21% of PPG's current assets
- Receivables: $3.028 billion
- Receivables makes up 44.44% of PPG's current assets
- Inventories: $1.860 billion
- Inventories makes up 28.9% of PPG's current assets
PPG's management commentary on the results and outlook
PITTSBURGH, Oct. 17, 2019 – PPG (NYSE:PPG) today reported third quarter 2019 net sales of approximately $3.8 billion, comparable with the prior year. Net sales in constant currencies were about 2% higher versus the previous year, driven by higher selling prices of 2.6%, and acquisition-related sales, net of divestitures, of more than 2%. Aggregate sales volumes were down nearly 3% versus the prior year. Unfavorable foreign currency translation impacted net sales by approximately 2%, or about $80 million
“We delivered strong adjusted earnings per share growth of 15% compared to the prior year quarter, as we continue to build momentum and remain focused on operating margin recovery. Strong execution against our cost-savings initiatives and our sixth consecutive quarter with selling price increases of at least 2% aided in our gross profit improvement, as we continue our efforts to offset the significant raw material cost inflation absorbed in the past few years,” said Michael H. McGarry, PPG chairman and chief executive officer. “Our earnings growth came despite notable weakening in industrial production, which was broad - both geographically and by end-use market – and which more significantly impacted our general industrial and automotive OEM coatings businesses. Consistent with our recent quarterly trends, the aerospace coatings and protective and marine coatings businesses posted strong sales growth. “We made excellent progress executing on our key initiatives, including $20 million of cost savings in the third quarter related to previously announced cost savings programs,” said McGarry. “In addition, we completed the acquisition of Dexmet, a manufacturer of specialty materials for aerospace, automotive and industrial applications. We have completed four acquisitions with combined annual revenues of about $400 million that are benefiting our results this year. We continue to generate strong operating cash flow, with year-to-date cash generation improving by about $600 million in comparison to last year. “As we look ahead to the fourth quarter, we anticipate global economic growth will remain soft impacting several end-use markets. Many of our customers remain cautious about their ordering patterns and inventory levels.
We expect additional margin recovery progress, including the benefit of $20 million of restructuring-related savings year-over-year. We also continue to commercialize innovative products and technologies that provide value to our customers and support incremental sales growth, including our recently announced PPG Envirocron® Extreme Protection Edge powder coating and the PPG MOONWALK™ automated paint mixing system for automotive refinish. Lastly, we ended the quarter with approximately $1.5 billion in cash and cash equivalents, providing us strong flexibility for shareholder value-creating cash deployment. “We currently expect 2019 full-year adjusted earnings per diluted share to be in the range of $6.17 to $6.27, which is comparable to our July guidance and includes fourth quarter year-overyear growth in constant currencies of about 15% at the mid-point,” McGarry added. “This guidance places our full-year 2019 adjusted earnings-per-share growth at the low-to-mid end of our previously communicated 7% to 10% range, excluding currency translation impacts. We continue to expect full-year sales growth of a low-single-digit percentage, excluding currency translation impacts.”
“We delivered strong adjusted earnings per share growth of 15% compared to the prior year quarter, as we continue to build momentum and remain focused on operating margin recovery. Strong execution against our cost-savings initiatives and our sixth consecutive quarter with selling price increases of at least 2% aided in our gross profit improvement, as we continue our efforts to offset the significant raw material cost inflation absorbed in the past few years,” said Michael H. McGarry, PPG chairman and chief executive officer. “Our earnings growth came despite notable weakening in industrial production, which was broad - both geographically and by end-use market – and which more significantly impacted our general industrial and automotive OEM coatings businesses. Consistent with our recent quarterly trends, the aerospace coatings and protective and marine coatings businesses posted strong sales growth. “We made excellent progress executing on our key initiatives, including $20 million of cost savings in the third quarter related to previously announced cost savings programs,” said McGarry. “In addition, we completed the acquisition of Dexmet, a manufacturer of specialty materials for aerospace, automotive and industrial applications. We have completed four acquisitions with combined annual revenues of about $400 million that are benefiting our results this year. We continue to generate strong operating cash flow, with year-to-date cash generation improving by about $600 million in comparison to last year. “As we look ahead to the fourth quarter, we anticipate global economic growth will remain soft impacting several end-use markets. Many of our customers remain cautious about their ordering patterns and inventory levels.
We expect additional margin recovery progress, including the benefit of $20 million of restructuring-related savings year-over-year. We also continue to commercialize innovative products and technologies that provide value to our customers and support incremental sales growth, including our recently announced PPG Envirocron® Extreme Protection Edge powder coating and the PPG MOONWALK™ automated paint mixing system for automotive refinish. Lastly, we ended the quarter with approximately $1.5 billion in cash and cash equivalents, providing us strong flexibility for shareholder value-creating cash deployment. “We currently expect 2019 full-year adjusted earnings per diluted share to be in the range of $6.17 to $6.27, which is comparable to our July guidance and includes fourth quarter year-overyear growth in constant currencies of about 15% at the mid-point,” McGarry added. “This guidance places our full-year 2019 adjusted earnings-per-share growth at the low-to-mid end of our previously communicated 7% to 10% range, excluding currency translation impacts. We continue to expect full-year sales growth of a low-single-digit percentage, 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 $91.90 and its currently trading at around $124.23 a stock. That's a return of 35.1% 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 35.1% 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 $124.90 than it is to its 52 week low of $94.41 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 latest dividend announcement obtained from TheStreet.com
The board of directors of PPG (NYSE:PPG) today declared a regular quarterly dividend of 51 cents per share, payable Dec. 12 to shareholders of record Nov. 12. This marks the company's 485 th consecutive dividend payment. Through ongoing dedication and expertise of its workforce, the company has raised its annual dividend payout for 47 consecutive years and paid uninterrupted annual dividends since 1899. PPG: WE PROTECT AND BEAUTIFY THE WORLD™ At PPG (NYSE:PPG), we work every day to develop and deliver the paints, coatings and specialty 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.
The board of directors of PPG (NYSE:PPG) today declared a regular quarterly dividend of 51 cents per share, payable Dec. 12 to shareholders of record Nov. 12. This marks the company's 485 th consecutive dividend payment. Through ongoing dedication and expertise of its workforce, the company has raised its annual dividend payout for 47 consecutive years and paid uninterrupted annual dividends since 1899. PPG: WE PROTECT AND BEAUTIFY THE WORLD™ At PPG (NYSE:PPG), we work every day to develop and deliver the paints, coatings and specialty 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.
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 $99.20 a PPG stock (up from our 2nd quarter 2019 earnings review and valuation of PPG Industries). 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 s $99.20. Therefore we see a good entry point into PPG's stock at $89.30 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 (full value) price for PPG Industries as we do believe the stock cannot hold on to its current valuation levels.
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 s $99.20. Therefore we see a good entry point into PPG's stock at $89.30 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 (full value) price for PPG Industries as we do believe the stock cannot hold on to its current valuation levels.