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PPG Industries (PPG) Up 16.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for PPG Industries (PPG). Shares have added about 16.8% 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 the most recent earnings report in order to get a better handle on the important drivers.

PPG Industries’ Q3 Earnings Miss Estimates, Sales Beat

PPG Industries logged net income of $329 million or $1.39 per share in third-quarter 2022, down from the year-ago quarter’s profit of $344 million or $1.43 per share.

Barring one-time items, adjusted earnings were $1.66 per share in the reported quarter, down from $1.69 logged in the year-ago quarter. The figure missed the Zacks Consensus Estimate of $1.67.

Net sales rose roughly 2% year over year to $4,468 million. The figure beat the Zacks Consensus Estimate of $4,459.6 million. The top line was driven by higher selling prices. However, volumes were hurt by weaker demand in Europe, lower demand recovery in China on a sequential comparison basis and unfavorable currency swings. Organic sales rose more than 9%, aided by higher selling prices.

Segment Highlights

Performance Coatings: Net sales in the segment were $2,705 million in the reported quarter, down 2% year over year, as lower sales volumes, divestitures, the wind down of business in Russia and unfavorable currency impacts more than offset higher selling prices in all businesses. Sales volumes in the segment were down 6%. Selling prices rose 11% year over year.

Segment income declined 11% year over year to $362 million. The downside was caused by raw material, logistics and labor cost inflation, unfavorable currency, higher manufacturing costs and lower sales volumes, partly offset by increased selling prices and restructuring cost savings.

Industrial Coatings: Sales in the segment were $1,763 million, up 9% year over year. Sales rose due to higher selling prices across all businesses and increased sales volumes, partly offset by the wind down of business in Russia and unfavorable currency impacts. Sales volumes rose 2% year over year and selling prices were up 14% year over year.

Segment income totaled $192 million, up 37% year over year. The upside was driven by increased selling prices and higher volumes, partly masked by higher raw material and energy costs and unfavorable currency translation.

Financials

PPG Industries ended the quarter with cash and cash equivalents of $1,029 million, down roughly 15% year over year. Long-term debt rose around 6% year over year to $6,478 million.

Outlook

Moving ahead, the company sees normal seasonal demand trends in the fourth quarter. Economic activity is predicted to remain weak in Europe and China. The company also envisions demand for architectural do-it-for-yourself paint products to continue to soften globally. The company also said that an additional cost-restructuring program is underway targeting $70 million in annualized savings upon full implementation.

PPG Industries projects adjusted earnings per share (EPS) in the band of $1.05-$1.20 for fourth-quarter 2022, barring amortization expenses of 13 cents and costs related to earlier approved and communicated business restructuring of 2 cents. It also sees reported EPS of 90 cents to $1.05 for the quarter.

The company also expects aggregate sales volumes to be down a mid-single-digit percentage on a year-over-year basis in the fourth quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -12.87% due to these changes.

VGM Scores

Currently, PPG Industries has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. It's no surprise PPG Industries has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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