Performance Coatings segment
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 the fourth quarter of 2018. Its contribution to total revenue was 58.7% compared to 57.7% in the fourth quarter of 2017.
The Performance Coatings segment reported revenue of $2.14 billion in the fourth quarter, flat year-over-year.
The segment’s revenue growth was primarily driven by higher selling prices and acquisition revenue of ~$15 million. However, the segment was most affected by the strong US dollar. Unfavorable foreign currency fluctuations affected its revenue by ~$55 million. The assortment changes in the DIY (do-it-yourself) channel also had an adverse revenue impact of $40 million.
By business, aerospace coatings led the segment’s growth at 10%. The architectural coatings businesses in Canada, the United States, and Europe, the Middle East, and Africa all grew in the low single digits. The automotive refinish coatings business remained flat, while the DIY business saw a significant fall.
Net income and margin
The Performance Coatings segment reported net income of $261 million in the fourth quarter of 2018, a rise of 0.8% YoY. Its net income rose due to higher prices and cost management. However, lower sales volumes, higher raw materials prices, an increase in logistical costs, and unfavorable foreign currency had an adverse impact on the segment’s income. The segment’s margin remained flat YoY.
The Performance Coatings segment’s revenue is expected to continue to face pressure from the strong US dollar. Unfavorable foreign currency is expected to have an adverse impact of $90 million–$100 million on the segment’s revenue, while acquisitions are expected to benefit it by $15 million. PPG needs to continue its efforts to increase product prices to overcome the challenge of increasing raw materials prices.
Investors can hold PPG Industries indirectly by investing in the Invesco DWA Basic Materials Momentum ETF (PYZ), which holds 2.8% of its portfolio in PPG Industries. The fund’s other holdings include FMC (FMC), LyondellBasell (LYB), and Celanese (CE) with weights of 3.8%, 3.6%, and 3.4%, respectively, as of January 18, 2019.
In the next article, we’ll look at PPG’s Industrial Coatings segment’s performance in the fourth quarter.