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PPG Is Expected to Report a Lower Adjusted EPS in Q4

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Adjusted EPS forecast

Wall Street analysts expect PPG Industries (PPG) to post an adjusted EPS of $1.10 for the fourth quarter, which reflects a decline of 7.6% YoY (year-over-year). In the fourth quarter of 2017, the company’s adjusted EPS was reported at $1.19. The projection indicates the declining trend in PPG Industries’ adjusted EPS in the fourth quarter.

The lack of growth in PPG Industries’ top line will likely impact the company’s bottom line. The continued increase in input costs due to higher raw material prices and an increase in logistics costs could have a negative impact on PPG Industries’ adjusted EPS. Although PPG Industries has increased its product prices, it might not be enough to counter higher raw material prices. As a result, analysts expect PPG Industries’ COGS (cost of goods sold) to increase as a percentage of sales. In the fourth quarter, analysts expect PPG Industries’ COGS to be 59.1% of the projected sales—compared to 57.5% in the same quarter the previous year, which implies an increase of 160 basis points year-over-year.

Could share repurchases help?

PPG Industries reiterated that it’s committed to deploying $1.0 billion on acquisitions and share repurchases in the fourth quarter. The company has completed a few acquisitions in the fourth quarter. As of the third quarter, PPG Industries spent $1.3 billion towards share repurchases. The trend is expected to continue in the fourth quarter. At the end of the third quarter, PPG Industries had 243.6 million outstanding common shares. Analysts expect the company’s outstanding shares to fall to 239.2 million at the end of the fourth quarter. Although the fall will likely push PPG Industries’ EPS, it might not have a big impact on the adjusted EPS.

Investors looking for indirect exposure to PPG Industries could invest in the iShares U.S. Basic Materials ETF (IYM), which has invested 4.1% of its portfolio in PPG Industries. The fund also provides exposure to Linde (LIN), Air Products & Chemicals (APD), and LyondellBasell (LYB) with weights of 14.8%, 5.8%, and 4.6%, respectively, as of January 15.

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