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PPG Industries Stock Rose, Posted Strong Earnings in 3Q17

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Part 2
PPG Industries Stock Rose, Posted Strong Earnings in 3Q17 PART 2 OF 4

PPG Industries: 3Q17 Adjusted Earnings Met Expectations

PPG Industries’ adjusted EPS in 3Q17

PPG Industries (PPG) reported an adjusted EPS (earnings per share) of $1.52, which includes the unfavorable impact of natural disasters up to $0.05. In 3Q16, PPG Industries posted an adjusted EPS of $1.52, which indicates that the adjusted EPS remained flat on a YoY (year-over-year) basis.

PPG Industries: 3Q17 Adjusted Earnings Met Expectations

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Despite the hurricanes and earthquake that impacted the US and South America, PPG Industries’ adjusted EPS was driven by effective cost management and the continued reduction of outstanding shares. However, higher raw material costs increased PPG Industries’ COGS (cost of goods sold) as a percentage of sales. PPG Industries’ COGS was reported at $2.1 billion, which represents 55.60% of the sales. In 3Q16, the COGS stood at $1.98 billion, which represented 54% of the sales—an increase of 160 basis points on a YoY basis.

PPG Industries’ SG&A (selling, general, and administrative) expenses were reduced as a percentage of sales. PPG Industries reported SG&A expenses of $905 million in 3Q17, which represents 24% of the sales. In 3Q16, the SG&A expenses were at $893 million, which represented 24.40%—a decrease of 40 basis points on a YoY basis.

PPG continues its share repurchases

At the end of 3Q17, PPG Industries’ outstanding common shares stood at 258.20 million—compared to 259 million at the end of 2Q17. It indicates that PPG Industries has bought back ~800,000 shares during the quarter. In 3Q16, PPG Industries’ outstanding shares stood at 266.30 million. PPG Industries might get aggressive with its share repurchases. It reiterated that it’s committed to deploying the remaining $2.8 billion for growth by the end of 2018. The money will go towards acquisitions and share repurchases.

Outlook

PPG Industries expects that the natural disasters will have a negative impact on its 4Q17 earnings up to $0.05 per share.

Investors looking for indirect exposure to PPG Industries can invest in the Materials Select Sector SPDR Fund (XLB). XLB has invested 4.50% of its portfolio in PPG Industries. The fund also provides exposure to Dowdupont (DWDP), Monsanto (MON), and Air Products and Chemicals (APD) with weights of 23.10%, 8.30%, and 5.20%, respectively, as of October 19, 2017.

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