Yahoo Finance Why You Should Retain PPG Industries (PPG) in Your Portfolio
PPG Industries, Inc. PPG is gaining from pricing actions, enhanced manufacturing efficiencies, cost discipline and acquisitions amid headwinds from demand weakness, especially in Europe.
The company’s shares are down 8.9% over a year, compared with a 10.6% decline of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Cost & Pricing Actions, Acquisitions Drive PPG
PPG Industries is benefiting from pricing measures, manufacturing efficiencies, cost-saving actions and efforts to grow its business through acquisitions.
The company is implementing a cost-cutting and restructuring strategy and 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. The company achieved $8 million of incremental cost savings in first-quarter 2024. It expects an additional $7-9 million in restructuring savings in the second quarter of 2024 and around $35 million for full-year 2024.
PPG Industries is also raising selling prices across its business segments to offset the impact of raw material and other cost inflation and drive profitability. Significant progress has been made in increasing consolidated segment margins. The company achieved a 60 basis points increase in the segment margin in the first quarter of 2024 compared to the same period in 2023. Notably, the first quarter marked the sixth consecutive quarter of year-over-year margin growth. Pricing measures will likely continue to support its margins in the second quarter.
The company is also undertaking measures to grow business inorganically through value-creating acquisitions. Contributions from the acquisitions are expected to be reflected in its performance. Acquisitions, including Tikkurila, Worwag and Cetelon, are likely to contribute to its top line.
PPG Industries also remains committed to boosting shareholder returns with cash deployment. It has an impressive record of returning cash to shareholders through dividends and share buybacks. The company has consistently raised its annual dividend payout for 52 consecutive years. It repurchased shares worth roughly $150 million and paid $153 million in dividends in the first quarter of 2024. Its board has also increased the share buyback authorization by $2.5 billion to roughly $3.4 billion.
Weaker Demand Ails
PPG remains exposed to soft demand conditions in Europe and China. Industrial production remains subdued, primarily attributed to cautious consumer purchasing patterns in Europe and a slow recovery in China. Additionally, weakened demand in specific end-use markets within the United States has contributed to the challenges. PPG is seeing lower sales volumes for automotive refinish coatings in the United States partly due to weaker body shop activities. Geopolitical tensions in Europe stemming from the Russia-Ukraine conflict have further dampened demand.
While the company is seeing improved demand for its products in China, it remains challenged by lower overall demand in Europe. The company expects global industrial production and demand in Europe to remain at low levels in the second quarter of 2024. The softness in industrial coatings is expected to continue in the second quarter due to the sluggish global industrial production.
Stocks to Consider
Better-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, Axalta Coating Systems Ltd. AXTA and ATI Inc. ATI.
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company’s shares have soared roughly 89% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Axalta Coating Systems, carrying a Zacks Rank #1, has a projected earnings growth rate of 26.8% for the current year. In the past 60 days, the consensus estimate for AXTA's current-year earnings has been revised upward by 5.9%. The company’s shares have gained roughly 8% in the past year.
ATI currently carries a Zacks Rank #2 (Buy). ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company’s shares have rallied around 34% 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
ATI Inc. (ATI) : Free Stock Analysis Report
PPG Industries, Inc. (PPG) : Free Stock Analysis Report
Carpenter Technology Corporation (CRS) : Free Stock Analysis Report
Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report
