Higher prices for automotive OEM coatings
On March 14, 2018, PPG Industries (PPG) announced that it will increase the prices of some of its coatings products that are supplied to automotive OEM customers. PPG Industries didn’t mention the quantum of the price increase. The price increase will be effective immediately or as the contract allows. The increase will likely impact the Americas region.
The move allows PPG Industries to pass the increased cost of raw materials to its clients. Earlier, PPG Industries struggled to do the same. The increased prices will likely help PPG Industries improve its revenue—assuming that the volumes don’t decline. Higher prices should help PPG Industries maintain or improve its operating margins. PPG Industries cited increased raw materials as the primary reason for price hikes. The impact of the price hikes will likely be more visible in 2Q18.
Matt Marek, PPG Industries’ vice president of automotive OEM coatings, Americas, said, “While we have experienced broad inflation across a number of raw material categories, liquid epoxy resins, titanium dioxide, isocyanates, plasticizers and solvents have incurred the most significant increases.”
Stock price update
PPG Industries declined 2.3% and closed at $114.93 for the week ending March 16, 2018. As a result, the stock traded 1% below the 100-day moving average price of $116.08. On a year-to-date basis, the stock has declined 1.6%. Sherwin-Williams (SHW), RPM International (RPM), and Axalta (AXTA) have declined 0.25%, 5.3%, and 4.2%, respectively. Analysts have provided a target price of $125.75 with a potential return of 9.4% over the closing price as of March 16, 2018.
Investors could hold PPG Industries indirectly by investing in the Guggenheim S&P 500 ® Equal Weight Materials ETF (RTM). RTM declined 2.3% during the same period. RTM has invested 3.9% of its portfolio in PPG Industries.