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PPG Benefits From Cost and Pricing Actions Amid Demand Woes

PPG Industries Inc. PPG is gaining from cost savings from restructuring actions, synergies of acquisitions and pricing initiatives to counter cost inflation amid headwinds from softer demand, which is hurting its volumes.

The company’s shares have gained around 10.9% over the past year, compared with its industry’s rise of 0.6% over the same time frame.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research



PPG Industries, a Zacks Rank #3 (Hold) stock, is implementing a cost-cutting and restructuring strategy, as well as optimizing its working capital requirements. The cost savings generated by these restructuring initiatives will act as a tailwind for the company. PPG Industries has undertaken extensive restructuring efforts to reduce its cost structure, primarily focusing on regions and end markets with weak business conditions.

PPG Industries is also raising selling prices across its business segments to offset the impact of cost inflation in raw materials, energy and logistics. The company witnessed a significant increase in its profits in the first quarter driven by pricing growth across segments, improved manufacturing efficiencies and overall cost discipline. Pricing measures are likely to continue to support its margins in the remainder of 2023.

The company is also undertaking measures to grow business inorganically through value-creating acquisitions. Contributions from the acquisitions are expected to get reflected in its performance in 2023. Acquisitions, including Tikkurila, Worwag and Cetelon, are likely to contribute to its top line this year.

PPG Industries also remains committed to boost shareholder returns with cash deployment. It has an impressive record of returning cash to shareholders through dividends and share buybacks. It has raised the annual dividend payout for 51 consecutive years. In 2022, the company returned around $570 million to shareholders through dividends and about $190 million through share repurchases. It also paid dividends worth around $145 million in the first quarter.

However, weaker demand in Europe and China is hurting the company’s volumes. The continued geopolitical issues in Europe, partly stemming from the Russia-Ukraine conflict, is hurting demand in the region. The slower manufacturing recovery in China following the lifting of the pandemic-related restrictions is also affecting demand in that country. Economic slowdown in Europe and continued disruptions from geopolitical factors might adversely impact results in the second quarter. Factoring in current global economic activities, geopolitical issues in Europe and higher interest rates in most developed countries, PPG expects sales volumes in the second quarter to be flat with the potential for slight improvement or decrease of a low single-digit percentage year over year. Softer industrial demand is likely to hurt volumes.

PPG Industries also faces headwinds from unfavorable currency translation, which is affecting its overall sales as witnessed in the first quarter. Unfavorable currency swings stemming from a strong appreciation of the U.S. dollar versus many foreign currencies including the euro, impacted sales by around 2% in the first quarter. Unfavorable currency translation affected sales by around $110 million in the quarter. Currency headwinds are likely to continue to impact sales in the second quarter.

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PPG Industries, Inc. Price and Consensus

 

PPG Industries, Inc. Price and Consensus
PPG Industries, Inc. Price and Consensus

PPG Industries, Inc. price-consensus-chart | PPG Industries, Inc. Quote

 

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include AngloGold Ashanti Limited AU, L.B. Foster Company FSTR and Linde plc LIN.

AngloGold Ashanti currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for AU’s current-year earnings has been revised 22% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for current-year earnings for AU is currently pegged at $1.94, reflecting an expected year-over-year growth of 50.4%. AngloGold Ashanti’s shares have popped roughly 36% in the past year.

L.B. Foster currently carries a Zacks Rank #1. The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days.

L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 5% in a year.

Linde currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.

Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 12% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

PPG Industries, Inc. (PPG) : Free Stock Analysis Report

AngloGold Ashanti Limited (AU) : Free Stock Analysis Report

L.B. Foster Company (FSTR) : Free Stock Analysis Report

Linde PLC (LIN) : Free Stock Analysis Report

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Zacks Investment Research