Analysts’ EPS forecast in 4Q17

As of January 11, 2018, analysts forecast PPG Industries’ (PPG) adjusted EPS (earnings per share) to be at $1.19 per share for 4Q17. It’s the same number that PPG Industries reported in 4Q16, which indicates no changes on a YoY (year-over-year) basis. However, PPG Industries could beat analysts’ estimates.

Can PPG Industries Beat Analysts’ Earnings Estimates?

PPG Industries’ expected adjusted EPS in 4Q17 is driven by the restructuring program. It’s expected to save $45 million per year. PPG Industries is on track to achieve the savings. As a result, PPG Industries’ SG&A (selling general and administrative) expenses are expected to decrease as a percentage of sales. Analysts expect PPG Industries’ SG&A expenses to be ~$892.20 million, which represents 24.75% of the expected revenue. In 4Q16, PPG Industries reported SG&A expenses of $986 million, which represents 28.20% of the sales and implies a fall of 345 basis points YoY.

However, PPG Industries’ cost of goods sold as a percentage of sales is expected to increase due to higher raw material prices. Analysts expect that PPG Industries’ 4Q17 cost of goods sold will be 58.50% of the expected sales—compared to 56.30% in 4Q16. It’s an increase of 220 points on a YoY basis.

New share repurchase program

On December 14, 2017, PPG Industries announced a new $2.5-billion share repurchase program. It excludes $1.4 billion remaining from the previous share repurchase program approved in October 2016. In 3Q17, PPG Industries retired ~800,000 shares, which resulted in PPG Industries’ outstanding shares at the end of 3Q17 at 258.20 million shares. The new authorization indicates that there could be some aggressive share repurchases during 4Q17 that would boost PPG Industries’ EPS. At the end of 4Q16, PPG Industries had 263.70 million common outstanding shares.

Investors looking for indirect exposure to PPG Industries can invest in the Materials Select Sector SPDR Fund (XLB), which has invested 4.40% of its portfolio in PPG Industries. The fund also provides exposure to Praxair (PX), LyondellBasell (LYB), and Air Products and Chemicals (APD) with weights of 6.80%, 5.40%, and 5.40%, respectively, as of January 11, 2018.

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