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Why PPG Industries’ Adjusted Q1 Earnings Might Fall

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Upcoming first-quarter earnings

In a press release on March 27, PPG Industries (PPG) said that it would announce its first-quarter earnings on April 18 before the market opens. The earnings will be followed by a teleconference at 2:00 PM EST on the same day to discuss the results.

In this series, we’ll discuss PPG Industries’ revenue expectations and adjusted EPS estimates.

Adjusted EPS

Analysts expect PPG Industries to post an adjusted EPS of $1.21 for the first quarter, which reflects a decline of 12.9% YoY (year-over-year). In the first quarter of 2018, PPG Industries reported an adjusted EPS of $1.39. The projection indicates a turn around in the company’s adjusted EPS for first quarters after seeing an upward trend for six consecutive years.

The expected decline 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 first quarter, analysts expect PPG Industries’ COGS to be 59.4% of the projected sales—compared to 57.6% in the same quarter the previous year, which implies an increase of 180 basis points YoY.

Could share repurchases help?

PPG Industries has been aggressive in its share buying. PPG Industries has $1.8 billion in its share repurchase program. The company will likely to continue its share repurchases. At the end of the fourth quarter, PPG Industries had 239.8 million outstanding common shares. Analysts expect the company’s outstanding shares to fall to 238.37 million at the end of the first 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 4.3% of its portfolio in PPG Industries. The fund also provides exposure to Linde (LIN), Air Products & Chemicals (APD), and LyondellBasell (LYB) with weights of 15.5%, 6.7%, and 4.4%, respectively, as of April 16.

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