PPG Industries’ debt situation
PPG Industries’ (PPG) debt has remained steady at around $4 billion since 2012. This is good news for investors, as the company doesn’t have to set aside too much to service its debt. The company’s equity position is strong, and its equity is driving growth. However, another perspective of the company’s debt figure is that it isn’t leveraging its full capacity and might be losing out on a growth opportunity.
In 2012, PPG’s debt was at $4.0 billion, and at the end of 1Q17, PPG’s debt had grown to $4.4 billion, growing at a CAGR (compound annual growth rate) of 2.3%. In 2013, PPG’s debt dropped to $3.4 billion. However, in 2014, PPG’s debt rose to $4.0 billion due to the acquisition of Comex.
The debt-to-equity ratio indicates the proportion of debt that is being used to finance the company’s assets. At the end of 1Q17, PPG’s debt-to-equity ratio stood at 0.83x, while its peers Sherwin-Williams (SHW), Axalta (AXTA), and RPM International (RPM) had debt-to-equity ratios of 0.93x, 2.39x, and 1.54x, respectively. In comparison to peers, PPG’s debt-to-equity ratio is the best.
Free cash flows
Considering the past five years, PPG’s free cash flow has been strong. However, the free cash flow is mainly used for acquisitions and share repurchases. It appears that at this point, reducing debt isn’t a top priority for PPG Industries. Investors can indirectly hold PPG Industries by investing in the iShares U.S. Basic Materials ETF (IYM).
In the next part, we’ll look into PPG’s interest expense and its ability to service its debt.