Back to top

Image: Bigstock

What's in the Cards for PPG Industries (PPG) in Q2 Earnings?

Read MoreHide Full Article

PPG Industries Inc. (PPG - Free Report) is set to release second-quarter 2020 results after the closing bell on Jul 16. The paint giant’s results will likely reflect the benefits of its cost-control initiatives and pricing actions. However, unfavorable impacts of weak demand in certain businesses and currency headwind are likely to have affected its performance.

PPG Industries beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters while missed twice, the average positive surprise being roughly 0.3%. The company posted a negative earnings surprise of around 0.8% in the last reported quarter.

Shares of the company are down 7.1% over the past year, compared with its industry’s 11.8% decline.


 

Let’s see how things are shaping up for this announcement.

Zacks Model

Our proven model predicts an earnings beat for PPG Industries this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earning beat.

Earnings ESP: Earnings ESP for PPG Industries is +4.85%. The Zacks Consensus Estimate for earnings the second quarter is currently pegged at 64 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PPG Industries currently carries a Zacks Rank #3.

What do the Estimates Say?

PPG Industries envisions its total sales volume for the second quarter to be down 30-35%.

The Zacks Consensus Estimate for revenues for PPG Industries for the to-be-reported quarter stands at $2,819 million, suggesting an expected year-over-year decline of 29.9%.

The Zacks Consensus Estimate for revenues for the company’s Industrial Coatings unit is currently pegged at $1,019 million, calling for a decline of around 36% year over year. The consensus mark for revenues for the Performance Coatings segment is pegged at $1,686 million, indicating a roughly 31% year-over-year decline.

Factors at Play

PPG Industries is actively managing costs and is also implementing appropriate pricing actions amid a challenging business environment. It remains focused on improving its cost structure and recovering margins through price increases. Benefits of these initiatives might reflect on the company’s bottom line in the June quarter. PPG Industries expects roughly $20 million in cost savings from its restructuring programs in the second quarter.

The company is also taking steps to grow business inorganically through value-creating acquisitions. Strategic buyouts (including Whitford Worldwide and Hemmelrath) that were completed last year are likely to have contributed to its sales in the second quarter.  

However, weak demand in certain businesses due to the coronavirus pandemic is likely to have negatively impacted the company’s second-quarter sales volumes. PPG Industries is seeing weak customer demand in automotive original equipment manufacturer (OEM), automotive refinish and aerospace coatings businesses.

The company is witnessing a reduction in automotive OEM industry production rates.   Moreover, weaker demand due to lower miles driven is expected to have hurt second-quarter volumes in automotive refinish. The negative impacts of customer shutdowns and lower miles flown globally are also expected to get reflected on sales volumes in aerospace in the second quarter.  

Currency translation headwinds are also likely to have exerted pressure on the company’s sales and margins in the second quarter. PPG Industries expects currency translation headwinds to impact net sales by $140-$150 million in the second quarter.

The company, last month, approved substantial restructuring actions to lower its global cost structure. The plan includes a voluntary separation program that was offered in the United States and Canada. The company cited weakened global economic conditions due to the pandemic and related recovery pace in a few end-use markets coupled with other opportunities to optimize supply-chain and functional costs.

Upon completion, PPG Industries anticipates the planned actions to offer $160-$170 million in annual pre-tax cost savings, with roughly $25-$35 million of savings predicted in 2020. However, PPG Industries expects to record pre-tax restructuring charges of $160-$180 million in the second quarter. This might have impacted the company’s bottom line in the second quarter.
 

PPG Industries, Inc. Price and EPS Surprise

 

PPG Industries, Inc. Price and EPS Surprise

PPG Industries, Inc. price-eps-surprise | PPG Industries, Inc. Quote

 

Other Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Freeport-McMoRan Inc. (FCX - Free Report) , scheduled to release earnings on Jul 23, has an Earnings ESP of +16.67% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont Corporation (NEM - Free Report) , scheduled to release earnings on Jul 30, has an Earnings ESP of +8.90% and carries a Zacks Rank #3.

Barrick Gold Corporation (GOLD - Free Report) , scheduled to release earnings on Aug 10, has an Earnings ESP of +5.56% and carries a Zacks Rank #3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Published in