Performance coatings in 4Q17
Among the two reporting segments of PPG Industries (PPG), PPG’s Performance Coatings segment contributed the larger share of the company’s overall revenue in 4Q17.
In the quarter, the segment’s contribution to PPG Industries’ overall revenue stood at 57.7% compared to 57.9% in 4Q16. The segment reported revenue of $2.1 billion, a rise of 7.3% on a YoY (year-over-year) basis.
The Performance Coatings segment’s revenue growth was primarily the result of favorable foreign currency, higher volume growth, and better pricing. Among the different business levels within this segment, automotive refinish coatings and aerospace coatings saw good volume growth. The architectural coatings business formed the bulk of the segment.
Regionally, volumes in the Americas and Asia rose on a YoY basis. Still recovering from the Mexican earthquakes, the Latin American region’s volumes remained flat. EMEA (Europe, the Middle East, and Africa) sales also remained flat. The company’s marine business, which had seen a falling trend, also remained flat.
Net income and margin
The segment reported net income of $260 million in 4Q17 compared to $239 million in 4Q16—a rise of 8.8% YoY. The rise in its net income was primarily due to higher volumes, favorable foreign currency, better cost management, and improved selling prices.
On the other hand, a rise in the cost of raw materials had an adverse effect on the segment’s net income. However, it managed to expand its margins slightly in the quarter. In 4Q17, the segment reported a margin of 12.2% compared to 12.1% in 4Q16—a rise of 10 basis points YoY.
Foreign currency is expected to continue its positive impact on the segment’s revenue and income. The cost of raw materials is expected to continue to rise, which could affect the segment’s earnings margin. However, If PPG manages to pass these costs on through price hikes to its customers, its margins may remain flat or see a slight expansion.
Investors can hold PPG Industries indirectly by investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM), which has invested 3.9% of its portfolio in PPG Industries. The fund’s other holdings include Albemarle (ALB), Sherwin-Williams (SHW), and LyondellBasell (LYB) with weights of 3.4%, 4.%, and 4.1%, respectively, as of January 18, 2018.
In the next article, we’ll look into PPG’s Industrial Coatings segment’s performance in 4Q17.