Yahoo Finance Why You Should Retain PPG Industries (PPG) in Your Portfolio
PPG Industries Inc. PPG benefits from cost savings due to restructuring activities, pricing actions and synergies of strategic acquisitions. The company also remains committed to maximizing shareholder returns. However, it faces headwinds from input and logistics cost inflation due to supply disruptions. Weak demand in Europe and China, unfavorable currency and a soft U.S. housing market are other concerns.
The company shares are down 4% over the past year compared with a 7.2% decline of its industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Favoring PPG?
The company 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-use markets with weak business conditions. The company's incremental restructuring savings in 2022 were $65 million, which included lower SG&A expenses as a percentage of sales. It anticipates $12 million in incremental restructuring savings in the first quarter of 2023. PPG also reduced its working capital requirements in the fourth quarter by decreasing inventory levels sequentially.
PPG Industries is on track to raise selling prices across its business segments to offset the impact of rising raw material costs. The company intends to completely recover the cost inflation experienced since 2021, with continued price hikes beginning in 2023. This is likely to strengthen its margins in 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. Buyouts, including Tikkurila, Worwag and Cetelon, are likely to contribute to its top line this year.
PPG Industries also aims to boost shareholder returns with cash deployment. It has an impressive record of returning cash to shareholders through dividends and share buybacks. In 2022, the company returned around $570 million to shareholders through dividends and about $190 million through share repurchases.
A Few Concerns
PPG is being challenged by elevated costs for raw materials and logistics. Raw material and logistics cost inflation on a year-over-year basis is expected to continue in the first quarter of 2023. In the foreseeable future, labor availability and elevated logistics costs will likely persist. The company's profitability is likely to be hurt by higher costs.
The continued geopolitical issues in Europe (stemming from the Russia-Ukraine conflict) and the impacts of pandemic-related restrictions in China affected demand in the fourth quarter. Demand weakness is expected to continue in Europe and China in the first quarter of 2023, hurting sales volumes.
Unfavorable currency translation is a challenge for PPG Industries, as seen in the fourth quarter, as it has an adverse impact on sales across all of its segments. The fourth quarter saw a $120 million decline in sales for the Performance Coatings business due to unfavorable currency movement brought on by the U.S. dollar's sharp increase against a number of other currencies, particularly the euro. Currency headwinds are expected to continue in the first quarter of 2023.
PPG is also expected to face challenges due to the weakening U.S. housing industry, as demonstrated by declining housing trends in recent months. In the near future, it is anticipated that the softening housing market in the United States will negatively impact the company's DIY business. The company is likely to continue to face demand headwinds in 2023 due to a slowdown in single- and multifamily home building.
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 Steel Dynamics Inc. STLD, Nucor Corporation NUE and Linde plc LIN.
STLD carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for STLD’s current-year earnings has been revised 12.6% upward in the past 60 days. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 11.3%. STLD has rallied roughly 25.5% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
NUE carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has been revised 14.7% upward in the past 60 days. Earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 7.7%. NUE has gained roughly 0.3% in a year.
Linde carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has been revised 3.7% upward in the past 60 days. Earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 5.9%. LIN has gained roughly 10.3% in a year.
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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
Nucor Corporation (NUE) : Free Stock Analysis Report
PPG Industries, Inc. (PPG) : Free Stock Analysis Report
Linde PLC (LIN) : Free Stock Analysis Report
