PPG hits record earnings, but sales fall on weak global demand
PPG delivered record earnings of $1.54 per share in the third quarter, but the company’s sales were flat because of unfavorable foreign exchange rates and weak demand worldwide for industrial coatings, including automotive paints.
Shares in the Pittsburgh coatings giant hit a 52-week high of $121.46 Thursday before closing at $121.24, up nearly 2%.
PPG didn’t specifically cite the four-week strike by workers at General Motors as a factor in its financial results, but it said in its earnings release that “extended and unexpected customer shutdowns” contributed to a decline in automotive coatings sales volumes in the quarter.
Asked about the effect of the strike during a conference call with analysts Thursday, PPG Chairman and Chief Executive Michael McGarry said, “No one particular customer will have a significant impact on our business.”
When the GM strike began in September, PPG’s automotive coatings sales team “immediately took aggressive cost action to insure the impact was minor,” Mr. McGarry said.
Net income for the quarter totaled $366 million, or $1.54 per share, up 2% from a year ago and the highest for any third quarter in the company’s history.
Adjusted income totaled $396 million, or $1.67 per share, up 15% from a year ago and beating analysts’ estimates of $1.61 per share. Adjusted income did not include after-tax charges of $30 million for environmental and restructuring costs.
Savings from ongoing costcutting initiatives totaled $20 million for the quarter.
Sales of $3.8 billion missed analysts’ estimates of $3.9 million. Negative foreign exchange rates impacted sales by about
$80 million, or 2%.
Sales in constant currencies — which don’t include exchange rate fluctuations — rose by about 2%, boosted by higher selling prices and acquisitions.
PPG in the past year bought four coatings companies with combined annual revenues of $400 million.
Mr. McGarry told analysts “the pipeline is active” for future acquisitions but he declined to comment on reports that the company may bid for Axalta Coating Systems, a Philadelphia company backed by Warren Buffet’s Berkshire Hathaway.
PPG’s most recent deal, closed in August, was for Dexmet, a Connecticut business that makes surface materials used in aerospace, automotive and industrial applications.
Sales of industrial coatings in the quarter fell by 1%, or about $15 million to $1.5 billion. Besides automotive, industrial coatings include packaging paints and coatings for appliances and machinery.
Sales of performance coatings — including house paints and coatings for aircraft and ships — increased by 1% to about $2.3 billion.
In the U.S. and Canada, sales of architectural, or house paints, rose modestly, led by sales at national chains like Home Depot and independent dealers while sales at PPG’s company-owned stores dropped slightly.
The coatings giant lost a key account last year when Lowe’s stopped carrying its house paints. Its brands including PPG Timeless and Olympic stains are generating “above average” growth at Home Depot, Mr. McGarry told analysts.
The company expects full-year adjusted earnings to range from $6.17 to $6.27 per share, on the lowto-mid end of its previous forecast of 2019 earnings growth of between 7% and 10%.