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PPG Industries’ Q4 Earnings Beat the Street—Stock Rises

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PPG Industries reports its fourth-quarter adjusted EPS

PPG Industries (PPG) announced its fourth-quarter earnings results before the market opened on January 17, 2019. It reported adjusted EPS of $1.15, a fall of ~3.4% over the fourth quarter of 2017. However, it managed to beat analysts’ consensus estimate of $1.10.

PPG’s fall in adjusted EPS was primarily driven by a decrease in its top line and an increase in its cost of goods sold as a percentage of its sales. The price increases in PPG’s products appear to be insufficient to cope with the increase in raw materials prices. As a result, in the fourth quarter, PPG reported a cost of goods sold of $2.18 billion, 60.0% of sales compared to 57.60% of sales in the fourth quarter of 2017. This difference implies an increase of 240 basis points year-over-year.

However, PPG’s adjusted EPS were pushed up by its aggressive share repurchases. During the quarter, PPG bought $400 million worth of shares, bringing the total to ~$1.7 billion for the year. Going forward, its existing shareholders will see more value added to their holdings.

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Stock reaction and guidance

On the day of its earnings release, PPG stock rose 4.7% and closed at $107.36. PPG’s peers Sherwin-Williams (SHW), RPM International (RPM), and Axalta Coating Systems (AXTA) rose ~2.0%, 0.9%, and 1.4%, respectively, on the same day.

PPG expects its EPS to be in the range of $1.18–$1.23 in the first quarter of 2019.

The Materials Select Sector SPDR ETF (XLB) has invested 4.4% of its portfolio in PPG Industries.

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