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Why PPG’s Industrial Coatings Segment’s Revenue Rose in 2Q17

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PPG’s Industrial Coatings segment in 2Q17

PPG Industries’ (PPG) Industrial Coatings segment is its lowest revenue contributor. The segment represented 39.5% of PPG’s total revenue in 2Q17, compared to 38.2% in 2Q16.

The segment reported revenue of $1.5 billion in 2Q17, compared to $1.4 billion in 2Q16, a rise of 4.1% on a year-over-year (or YoY) basis.

The segment’s revenue rose primarily due to higher volumes driven by the growth in the automotive original equipment manufacturers (or OEM) industry. This growth came despite a fall in auto industry production. 

The segment’s overall volumes rose 3% while prices softened in the quarter. Its acquisition-related sales stood at $65 million, but foreign currency charges hit its revenue to the extent of $25 million.

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Net income and margin

The Industrial Coatings segment reported net income of $264 million, a fall of 9.6% YoY. Rising raw materials costs and falling prices resulted in the segment’s falling net income and margin. The segment’s margin contracted 250 basis points to 17.5% in 2Q17.

Segment’s outlook

The global automotive OEM industry is expected to improve in 3Q17, and PPG expects to outperform industrial growth. Further, the Industrial Coatings segment doesn’t expect any adverse currency effects due to the prevailing weakness in the US dollar.

Investors looking for exposure to PPG can invest in the ProShares Ultra Basic Materials ETF (UYM), which invests 2.9% of its portfolio in PPG. The fund’s top holdings include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with weights of 7.8%, 7.7%, and 5.4%, respectively.

In the next article, we’ll look at analysts’ views on PPG following its 2Q17 earnings

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