PPG Industries (PPG, Financial) reported impressive third quarter 2014 financial results with sales exceeding 4% during the quarter, similar to the second quarter. The increased sales were primarily due to enhanced volumes that exceeded 3% during the quarter over the same period last year. Volumes in all the key regions including Asia and North America both increased approximately 4% on year-over-year basis compared to earlier quarters. Volumes in Europe increased slightly lower than 1% with sales increasing approximately 2% over the previous year results.
Witnessing strong demand
PPG witnessed excellent architectural demand growth in Eastern Europe and the UK which was partly offset by moderately poor results in other countries such as France where volumes declined in low single-digit percentages and similar to last year’s volume decline. Importantly, the overall demand in Europe remained steady during September.
The solid European and the UK demand are believed to hugely benefit PPG in a long run considering the significant market size.
In North America, PPG gained from continuous reasonable economic growth. Industrial activity depicted robust expansion with increased aerospace demand, enhanced regional automotive OEM coatings and a complete increase in the industrial demand in general. Business volumes for these markets expanded in mid to high single-digit percentages.
Innovative technologies are driving growth
PPG is continuously benefiting from the enhanced traction for its innovative technologies. Its extraordinary sales were primarily due to a solid volume expansion in automotive refinish, automotive OEM coatings and aerospace where the expansion rate for the quarter remained in line or exceeded the previous quarter's results.
The increased volume in North America, Asia and Europe coupled with accelerated acceptance of the company’s innovative and unique technologies underline its supreme growth strategy.
PPG sales in Asia increased 5% comprising of 4% volume expansion. The robust growth covered almost all PPG businesses for the region partially enabled by the growth of automotive and industrial markets. In addition, its volume for the marine segment increased reasonably supported by the industrial recovery post many years of continued activity fall.
Making smart moves
PPG strategically deployed its enhanced earnings received from the expanded sales in Asia, North America and Europe along with the major acquisition-linked synergies in key share repurchases. It bought back approximately 740,000 shares worth $150 million during the quarter and nearly 2.4 million shares worth $450 million for year-till-date.
The sales of architectural coatings increased in low single-digits helped by greater U.S. sales from national DIY retailers and in the company-owned stores. But sales were partially offset by reasonably poor demand in Canada. Further, a notable recovery in the commercial or non-residential construction segment resulted in enhanced flat glass sales for the quarter.
The key share repurchase program executed by PPG illustrates the robustness of its balance sheet. And the improved sales of its architectural coatings strengthen its position in the ongoing U.S. market recovery.
The Latin American volumes representing nearly 5% of the company’s sales expanded in low single-digit percentages supported by expanded automotive demand. Tactically during the quarter PPG concluded the sale of a flat glass manufacturing facility in North America, and the partner for its automotive glass equity sold a major business line with both divestiture transactions producing gains for once.
PPG is yet to complete the key acquisition of Comex and estimates to conclude the acquisition formalities during the fourth quarter supported by the attractive economic trends in Mexico.
The strategic sales of a North American flat glass developing facility along with the selling of a key business line started in partnership is believed to add significant free cash flows to the company’s already solid balance sheet. Moreover, the strategic acquisition of Comex is forecasted to drive big revenue stream for PPG, going forward.
Conclusion
Overall, the investors are advised to invest into PPG Industries Inc. looking at the healthy valuation levels, depicted by the trailing P/E and forward P/E ratios of 14.75 and 17.16 respectively. The PEG ratio of 1.49 indicates that the company growth is slightly costlier to the shareholders. PPG also needs to manage its huge debt levels of $3.35 billion, above its total cash of $3.04 billion. But, the profit margin of 13.69% is impressive and suggests significant shareholder profit.
