PPG Industries (PPG, Financial) reported strong results recently, driven by its U.S. and Canada businesses that illustrated approximately 5% expansion in the sales volume on year-over-year basis. Its Asia-Pacific segment also expanded 5%, recording the peak growth rate for the year. PPG Industries reported approximately 1% expansion in the sales volumes for the Middle East, Europe and Africa after remaining constant during the third quarter.
There was improvement in the sales volumes for each of its business segments viz. architectural coatings, automotive refinish and aerospace business in Canada and the U.S.
Strong growth ahead
The impressive growth in all the key business segments of PPG Industries is believed to drive a solid organic growth for the company and thereby, improved investor returns.
PPG recently acquired Comex, which supplemented its sales volume growth for the quarter by nearly 6%. The Comex acquisition contributed to nearly $175 million of the quarter sales with a satisfactory percentage return on sales, highlighting the superior quality of its business.
In addition, PPG bought back $300 million or approximately 1.4 million shares during the fourth quarter, making its entire-year net share repurchase total to $750 million or approximately 3.8 million shares. For the quarter, its average diluted outstanding shares were 2.7% lower compared to the previous year's fourth quarter.
The well-timed acquisition of Comex along with the strategic share repurchases executed by PPG signifies the robustness of the company’s balance sheet and its keen focus on delivering superior shareholder returns.
The earnings for PPG enhanced in all the key segments by minimum 14%, including an enhancement of over $100 million or 21% for Europe in spite of soft local economic activity and currency declines by the conclusion of the year. Several of its businesses are growing superbly and in most of the cases it exceeded the particular worldwide industry growth rates.
More positives
PPG is still receiving the benefits of its strategic acquisition of the North American architectural coatings business of Akzo Nobel executed in 2013. Post about two years of strategic business consolidation, PPG is currently shifting towards that business development focus.
The healthy business development of PPG across the North America and Europe indicate the robustness of the company’s global growth strategy, which is believed to benefit the long-term investors as well.
Deutsche Bank has raised its price target on PPG Industries, Inc. to $250 from $215 previously and maintained its Buy rating for the stock. Analyst David Begleiter is primarily encouraged by the company’s solid fourth quarter performance driven by an excellent volume growth in Marine, Aerospace and Auto OEM segments. Also, the key acquisition of Comex expands the company’s earnings and provides with an improved EPS.
The robust balance sheet of PPG allows it to finance the key acquisitions and drive improved shareholder returns much in line with the analyst’s expectations for the stock.
PPG exceeded its earlier target of deploying total cash in $3 billion to $4 billion range for share repurchases and strategic acquisitions to be executed in 2015. Its real cash deployed linked to share buybacks and acquisitions for last year added to approximately $3.2 billion. Going forward, it estimates to deploy an extra $1.5 billion to $2.5 billion of cash on share repurchases and acquisitions during the years 2015 and 2016 coupled with a sharp focus on delivering superior shareholder returns.
The strategic acquisitions and planned share buybacks is believed to add higher value to the company’s already robust product portfolio, enabling greater investor returns.
Conclusion
Overall, the investors are advised to invest into the PPG Industries Inc. looking at the logical company valuations with the trailing P/E and forward P/E ratios of 15.17 and 17.60 respectively. It is also much better than the industry’s average P/E of huge 102.81, depicting excessive cost. The PEG ratio of 1.61, above 1 indicate lower company growth and comparable to the industry’s average of 1.40.
However, the profit margin of 13.69% is impressive. Still, PPG needs to optimize its hugely debt-laden balance sheet with a significant total debt of $4.02 billion against weak total cash of $1.19 billion only, restricting the company to plan for future growth investments.
