PPG Industries (PPG, Financial) is focused on implementing a robust cost structure and productivity enhancements. Several of its businesses have illustrated solid and more than the key industry growth rates due to the benefits gained from its innovative technologies and superior customer service.
Making the right moves
PPG reported a satisfactory increase in the sales volume growth, increasing approximately 1% on year-over-year basis and signifies the general slowdown in the international economic activities.
The paint production major is keen on lowering its overall cost structure by optimizing its daily operations and offset the affect of general decline in the global economic conditions.
Locally, the company’s peak coatings growth rate was recorded in budding areas which grew by nearly 6%. This indicates an expansion compared to the recent quarters with all of its businesses generating superior volumes growth on year-over-year basis. This key growth was allowed by an impressive performance in Asia, particularly in China. In Latin America, there was a mixed demand from the end-use market.
PPG volumes for its Canadian and the U.S. coatings businesses fell somewhat, declining 1%. However, the volumes for the last year were impressive throughout several of its businesses, signifying improving regional economic environment, along with pipeline fills of innovative products at many of its key architectural coatings customers.
The strengthening growth of the company’s businesses in Asia, mainly in China is estimated to be slightly offset by the decline in the coatings businesses in the U.S. and Canada.
Strong growth across the globe
For EMEA including the Europe, Africa and the Middle East, the volumes of PPG expanded by 1%. The volume growth is also comparable to the last year’s first quarter robust volume growth of 4%, which exceeded all the earlier expectations amid a tough operating environment.
Several of its businesses generated impressive growth in the area with significant help from Ireland, the U.K., and several Eastern and Central European countries. The operating environment also remained disappointing in several other countries like Africa and France.
The ongoing increase in the volume growth for the EMEA nations such as the Middle East, Africa and Europe is expected to be significantly supported by the solid business traction gained in the U.K., Ireland, and most of the Central and Eastern European countries. However, this volume gain is estimated to be slightly balanced by the falling operating scenarios in France and Africa.
The above chart depicts the company’s continued focus on deploying balanced and distributed cash flows. PPG Industries has executed balanced cash deployment strategies over the past 10 years from 2004 till 2013 with a maximum 33% share of the capital employed for the key acquisitions.
PPG has deployed 55% of the overall cash flows in its business expansion with the remaining 45% of the significant cash flows being returned to the key stakeholders, which is in line with the company’s continued commitment to deliver enhanced investor returns.
The strategic cash deployment by the PPG Industries indicates the management’s superior capabilities to manage the company’s key organic and inorganic growths, in addition to its commitment to deliver improved shareholder returns.
PPG has allowed for a balanced capital spending of about 3% of the sales. It has offered unhindered annual dividend payments since 1899 with 42 successive years of enhanced dividends (10% growth in 2014). More than 50 acquisitions have been executed by PPG since 1998 including SigmaKalon for approximately $3.2 billion in 2008, AkzoNobel N.A. architectural coatings for about $1.0 billion in 2013, and finally the latest acquisition of Comex Mexico for approximately $2.3 billion in 2014. Further, PPG has executed nearly $635 million of annual average share repurchases for the previous 4 years again, depicting the company’s focused efforts to deliver enhanced shareholder returns.
The competitive advantage of PPG industries hails from its significant size and worldwide scope. The company delivers huge cash flows and has the opportunity to acquire its key competitors and grow sales. PPG Industries' sharp focus on expanding the coatings industry, has enabled it to selloff its assets in highly capital demanding businesses and reinvest the profits into the coatings business. For instance, PPG acquired the Glidden paint brand from AkzoNobel in North America for approximately $1.05 billion in 2013.
The robust organic and inorganic expansion of the businesses of PPG Industries globally, suggests the superior growth strategies of the company.
PPG concluded the earlier declared acquisition of REVOCOAT, which is an automotive specialty materials producer. PPG also declared its intention to capture the majority stake in an automotive and aerospace sealants business in the quarter.
Conclusion
Overall, the investors are advised to invest into the PPG Industries looking at the satisfactory company valuations with the trailing P/E and forward P/E ratios of 27.05 and 17.46. The stock is also much cheaper than the industry’s average P/E of 102.81. The PEG ratio of 1.68 depicts a fair valued stock and is comparable to the industry’s average of 1.56. The profit margin of 7.55% is also satisfactory. Still, PPG needs to optimize its debt-burdened balance sheet with significant total debt of $4.02 billion against smaller total cash of $1.19 billion only, restricting the company to plan for future growth investments.
