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Reading PPG Industries' 3Q17 Pre-Earnings Expectations

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Part 3
Reading PPG Industries' 3Q17 Pre-Earnings Expectations PART 3 OF 5

What Analysts Foresee in PPG’s 3Q17 Adjusted Earnings Per Share

PPG’s expected adjusted earnings per share in 3Q17

As of October 11, 2017, analysts are expecting PPG Industries (PPG) to report adjusting EPS (earnings per share) of $1.55, which would be a 0.60% fall on a YoY (year-over-year) basis. In 3Q16, PPG reported adjusted EPS of $1.56.

What Analysts Foresee in PPG&#8217;s 3Q17 Adjusted Earnings Per Share

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Driving factors

The increase in raw material prices is expected to drive up COGS (cost of goods sold). Analysts are expecting PPG’s COGS to reach $2.19 billion in 3Q17, representing ~58.4% of expected sales. In 3Q16 PPG’s COGS stood at $2.08 billion, which was 54.9% of its revenues and a rise of 350 basis points YoY.

PPG’s exit from the glass business will likely have an adverse impact, but PPG has said that it’s speeding up the restructuring program it announced in 2016. As a result, analysts expect a significant drop in SG&A (selling, general, and administrative) expenses. In 3Q17, PPG’s estimated SG&A expenses could be only $902 million, representing 24.0% of expected sales. In 3Q16, PPG’s SG&A expenses were $1.01 billion, representing 26.8% of sales and a YoY fall of 280 basis points.

Share repurchases

Companies buy back shares to improve their earnings per share. PPG has announced that it will resume its share repurchase activities in 3Q17. PPG has set aside $2.5 billion–$3.5 billion for acquisitions and share repurchases for fiscal 2017 and fiscal 2018. But it remains to be seen how many shares will PPG buy back in 3Q17 to boost its EPS. At the end of 2Q17, PPG had 259 million outstanding shares.

Investors looking for indirect exposure to PPG Industries can consider the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which has 4.1% of its total portfolio in PPG. RTM also provides exposure to Albemarle (ALB), Sherwin-Williams (SHW), and DowDuPont (DWDP), which had weights of 4.4%, 4.2%, and 4.2%, respectively, on October 11, 2017.

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