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Why PPG Industries’ 2Q16 Revenue from Performance Coatings Fell

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Performance Coatings’ revenue

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%.

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Highlights from Performance Coatings

  • 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.

Outlook for 3Q16

  • 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.

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