Performance Coatings in Q2 2018
PPG Industries (PPG) has two reporting segments—Performance Coatings and Industrial Coatings. The Performance Coatings segment was the most significant contributor to the company’s overall revenue in Q2 2018. Its contribution to total revenue was 60.5% compared to 60.4% in Q2 2017. It reported revenue of $2.5 billion, a rise of 8.7% YoY (year-over-year).
The Performance Coatings segment’s revenue growth was mainly driven by higher sales prices, increased sales volumes, and favorable foreign currency. Among the different business levels within the segment, aerospace coatings volumes grew more than 10%. Automotive refinish coatings witnessed mid-single-digit growth due to higher volumes in the United States, Canada, and emerging markets.
The architectural coatings business in the Americas and Asia-Pacific increased by mid-single-digit percentages YoY. Volumes also grew in Latin America, led by Mexico and Central America, while architectural EMEA (Europe, the Middle East, and Africa) sales declined by a mid-single-digit percentage.
Net income and margin
The Performance Coatings segment reported net income of $428 million in Q2 2018, representing an increase of 6% YoY. Net income was mainly helped by favorable foreign currency, higher sales, and higher volumes.
On the other hand, a rise in the cost of raw materials and higher logistics costs due to the increase in higher crude oil prices had an adverse effect on the segment’s net income and margin. Lower net income growth compared to revenue growth resulted in the contraction of the segment’s net income margin, which was 17.1% compared to 17.6% YoY.
The segment’s revenue is expected to continue to grow, riding on higher volumes in automotive and aerospace. However, the architecture business could have an adverse impact due to a change in customer assortment. The higher cost of raw materials is expected to put pressure on margins in the upcoming quarter as well.
Investors can access PPG Industries indirectly by investing in the iShares Edge MSCI Multifactor Materials ETF (MATF), which has invested 6.3% of its portfolio in PPG Industries. The fund’s other holdings include DowDuPont (DWDP), LyondellBasell (LYB), and Eastman Chemical (EMN) with weights of 21.7%, 7.8%, and 5%, respectively, as of July 19.
In the next part of this series, we’ll look at PPG’s Industrial Coatings segment’s performance in Q2 2018.