There is a lot of opportunity in PPG Industries' (PPG, Financial) end markets, and to tap it, the company is doing the right thing by making acquisitions.
A look at key acquisitions
By acquiring Flood Australia, PPG has strengthened its architectural segment. Flood Australia manufactures and distributes specialty wood stain and paint additive solutions for industrial as well as household consumers, and the acquisition will help PPG expand its base in Australia.
From the above discussion, it is clear that PPG is focusing on different end markets through its acquisitions. In my opinion, this is a smart move. Additionally, PPG is also making some organic growth moves. For instance, it has completed the expansion of its 65,000-square-foot coatings manufacturing plant in Brazil. The facility will be used for the production of resin, which, in turn, will be utilized in making electrocoat products. It is a strategic move by the company to tap the increasing demand for electrocoat from automotive OEMs and industrial coatings customers.
Some more positives
Its inorganic growth has started yielding strong numbers, which was visible in its fourth-quarter results. The same was visible on the stock market as its shares touched all-time highs. But apart from its strong performance; there is yet another reason for investors to cheer. During the year PPG returned more than $1.1 billion to its shareholders though dividends and share repurchases. But there is more to this story, which we shall discuss in detail but first let’s have a look at its numbers.
In spite of facing currency headwinds during the quarter, the company reported year-over-year growth in its top line. During the quarter its net sales rose 5.9% from a year ago to $3.7 billion, while adjusted earnings from continuing operations increased 26% to $2.11 a share compared to last year. The numbers were driven by a number of factors including volume gains from various regions, inorganic growth through acquisitions and strong performance from its industrial coatings business.
PPG hopes to continue this momentum in the days ahead and its inorganic growth strategy will play a significant role in this.
Led by these positives, research firm Moody’s has upgraded its rating to Baa1. According to report published by Moody’s Investor service “PPG's Baa1 rating is supported by the company's a) leading market positions in its core business segments (number one or two market share in key end-markets); b) large cash balance that greatly improves financial flexibility; c) greater stability in earnings and cash flow, and lower capital intensity, than most other chemical companies; and d) continued expansion of its coatings businesses utilizing proceeds from divestitures.”
Conclusion
The upgrade will further increase investors' attention to this stock, which is already near its all-time highs. Also, during the year it managed to refinance some of its debt obligations, which will result in lower net interest beginning in 2015, and consequently enhance its bottom line. Although the company has some headwinds on account of Forex fluctuations but these positives are more than sufficient to offset the minor challenges. Therefore keeping in mind its future initiatives PPG industries is expected to grow further in the long run.
