PPG Industries (PPG, Financial) reported solid results for the third quarter with year-over-year growth in both Net sales and profits. As far as expectations are concerned, revenue marginally missed the consensus, while earnings topped the street estimates. As a result of its strong performance, the stock had a splendid rally since the company reported its third-quarter numbers, and it seems to be on the right track to continue its growth in the days ahead.
What's driving its growth
Its increased sales were driven by higher volume across all major regions with North America and Asia leading the pack. While on a segmental basis, the numbers were led by volume growth in aerospace, automotive, OEM coatings and automotive refinish. Not only this, but PPG also took advantage from cost synergies related to last year's acquisition of North American Architectural Coatings. In fact, the company made tremendous progress with its new addition and is one year ahead of its expectations.
However, its Latin American operations were not so smooth, as it reported volume growth of low single digits, which was offset by lower results in other businesses. To counter some of these challenges, the company sold its flat glass manufacturing facility in North America. Along with this its automotive glass equity affiliate also sold one of its business lines generating a onetime gain. PPG will eventually shift this production to its other North American float glass manufacturing sites. This seems to be a right step to improve its efficiency, as it will allow them to focus on higher-technology, coated glass capabilities that are used in residential and commercial construction applications.
More improvements
In addition, PPG got a green signal from Mexico’s Federal Economic Competition Commission (FECC), which enabled it to complete the acquisition of Consorcio Comex S.A. for a sum of $2.3 billion. The company adopted a similar move last year with the acquisition of Akzo Nobel’s North American architectural coatings business, which consequently boosted its branded paint product offering in the region. And now with this new integration, PPG hopes to do the same.
Comex is a leading paint company in Mexico generating revenue of around $1 billion with eight manufacturing facilities and six distribution centers. It distributes its products through a network of more than 3,700 stores in Mexico and Central America. This is a significant addition for PPG as it will bolster its presence in Mexico and Central America with its strong architectural coatings portfolio. The deal is aimed to expand PPG’s coatings business and is expected to generate an EPS of 65 cents to 75 cents in 2015.
Apart from acquisitions, the company also believes in organic growth and is trying to capture the market with its new product launches. Its Olympic Paint and Stain brand recently launched a new line of flat and semi-gloss paint, which starts at $11.97 per gallon.
Conclusion
These are encouraging developments around the company, which could take it to new heights. Especially its latest acquisition of Comex further reflects the strong fundamentals of the management and their ability to take strategic decisions. The company currently has a trailing P/E of 14 compared to the industry P/E of 19.34. Although its forward P/E might be a bit disappointing at 19.85, but its future prospects are highly positive. Moreover, the stock is currently near its all time highs and considering the above factors we could see more upside to this stock.
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