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Why PPG’s Industrial Coatings’ Q4 Revenue Fell

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Industrial Coatings in the fourth quarter

PPG Industries’ (PPG) Industrial Coatings segment is the company’s second reporting segment. It represented 41.3% of PPG’s total revenue in the fourth quarter compared to 42.3% in the fourth quarter of 2017.

The Industrial Coatings segment reported revenue of $1.50 billion in the fourth quarter, a fall of 3.4% over the fourth quarter of 2017. It reported revenue of ~$1.56 billion in the quarter.

The fall in the segment’s revenue was primarily driven by lower sales volumes and an unfavorable foreign currency exchange. The strong US dollar reduced the segment’s sales by $55 million. However, this reduction was offset by higher selling prices, which improved the segment’s revenue by ~2%.

By business, automotive OEM (original equipment manufacturer) coatings volumes fell 5% driven by falls in China and Europe. General industrial coatings witnessed low-single-digit growth. The packaging coatings business also grew in the low single digits.

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Net income and margin

In the fourth quarter, the Industrial Coatings segment reported net income of $187 million, a fall of 12.6% YoY (year-over-year). The fall was mainly the result of an increase in raw materials costs, increased logistical costs, the softening of the global automotive OEM industry, and an unfavorable foreign currency exchange. As a result, the segment’s net income margin saw a sharp contraction of 130 basis points YoY, from 13.7% in the fourth quarter of 2017 to 12.4% in the fourth quarter of 2018.

Outlook

The segment’s revenue is expected to have an adverse impact on its performance led by an unfavorable foreign currency exchange. The automotive OEM coatings business is expected to remain soft, but its selling prices are expected to improve YoY. Raw materials prices are expected to increase at a moderate level, and higher logistical costs are expected to put pressure on the segment’s margin.

The Invesco S&P 500 Equal Weight Materials ETF (RTM) has invested 4.0% of its portfolio in PPG Industries. The fund’s other holdings include Eastman Chemical (EMN), FMC (FMC), and Albemarle (ALB) with weights of 4.3%, 4.0%, and 3.5%, respectively, as of January 18, 2019.

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