Why PPG Industries’ 2Q16 Revenue from Performance Coatings Fell

In this part, we’ll look into PPG Industries’ (PPG) Performance Coatings segment, the largest revenue contributor for PPG Industries. In 2Q16, this segment contributed approximately 57.5% of PPG’s total revenues. The segment reported revenues of $2.34 billion in 2Q16, as compared to $2.41 billion in 2Q15. This implies a decline of 3% on a YoY (year-over-year) basis. But the segment posted a net income of $428 million in 2Q16, as compared to $411 million in 2Q15, implying a growth of 4%.

• The overall sales volumes of this segment went down by 2% on a YoY basis.
• Foreign currency translations impacted the segment negatively by 3%.
• Automotive refinish business witnessed revenue growth, while the aerospace coatings business witnessed volume growth.
• The architectural coatings business in EMEA (Europe, Middle East, and Africa) was impacted by weather.
• The architectural coatings business, on a regional basis, saw volume declines in Brazil and China, but it saw higher volumes in Mexico.
• The weakness in global marine newbuilds impacted the volume in marine the coatings business negatively.

• Sales from this segment will be low due to normal seasonality.
• PPG expects that Boeing (BA) and Airbus will work toward clearing backlogs, which will likely create demand for the aerospace coating business.
• PPG also foresees a higher build rate of F35 planes from Lockheed Martin (LMT), which will help this segment grow further.
• PPG expects acquisition related sales to be at around $15 million–$20 million in 3Q16. However,  foreign currency translations will continue to impact the segment in 3Q16.

Notably, investors can hold PPG Industries indirectly by investing in ETFs like the SPDR S&P 500 ETF (SPY) and the Materials Select Sector SPDR Fund (XLB), which had weights of 0.15% and 5.1%, respectively in PPG on July 22, 2016.

In the next part, we’ll look at PPG’s Industrial Coatings segment.