Industrial Coatings in Q3 2018
PPG Industries’ (PPG) Industrial Coatings segment is the company’s second reporting segment. It represented 40% of PPG’s total revenue in Q3 2018 compared to 39.4% in Q3 2017. It reported revenue of $1.53 billion, an increase of 2.8% over Q3 2017 with reported revenue of $1.49 billion.
The segment’s revenue increase was primarily driven by three factors. Acquisition-related revenue helped the segment’s revenue grow ~2%, led by the Crown Group that contributed $30 million in sales. Its sales volume increased, driven by packaging coatings and specialty coatings. Finally, the increase in product prices pushed the segment’s revenue up ~1%. However, the revenue was adversely impacted by the strong dollar. An unfavorable currency had a negative impact of ~3% on the segment’s revenue.
Net income and margin
In Q3 2018, the Industrial Coatings segment reported net income of $169 million, a fall of 26.7% YoY (year-over-year). The decline was mainly due to an increase in raw material costs, increased logistical costs due to increased crude oil prices, and an unfavorable foreign currency. The increase in revenue and the decrease in net income had an adverse impact on its margin. As a result, the segment’s net income margin had a sharp contraction of 400 basis points YoY, from 15.1% in Q3 2017 to 11.1% in Q3 2018.
The segment’s revenue is expected to have an adverse impact led by unfavorable foreign currency. The continued raw material price increase and logistical costs are expected to put pressure on its margin. PPG may need to pass on its increasing raw material costs to its clients, which could help improve the segment’s revenues and margins.
The Invesco S&P 500 Equal Weight Materials ETF (RTM) has invested 4.1% of its portfolio in PPG Industries. The fund’s other holdings include Praxair (PX), Albemarle (ALB), and FMC (FMC) with weights of 4.7%, 4.4%, and 4.5%, respectively, as of October 19.