Why PPG Shares Are Sliding

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PPG Industries Inc. (NYSE: PPG) shares dropped on Tuesday after the company announced preliminary results for its third quarter. The expectations fell somewhat short, and inflation, as well as rising costs, are to blame for this. We can expect to see these results on October 18.

During the third quarter, PPG continued to experience significant raw material and elevating logistics cost inflation, including the effects from higher epoxy resin and increasing oil prices. These inflationary impacts increased and, as a result, the company saw the highest level of cost inflation since the cycle began two years ago.

As a result, the company now expects to see earnings per diluted share (EPS) from continuing operations in the range of $1.47 to $1.51 and adjusted EPS from continuing operations of $1.41 to $1.45 for the third quarter. At the same time, net sales are expected to be roughly $3.8 billion. In the same period last year, adjusted EPS totaled $1.52 while net sales totaled $3.78 billion.

Consensus estimates from Thomson Reuters call for $1.58 in EPS and $3.87 billion in revenue for the third quarter.

Michael McGarry, PPG board chair and chief executive, commented:

Also, during the quarter, we saw overall demand in China soften, and we experienced weaker automotive refinish sales as several of our U.S. and European customers are carrying high inventory levels due to lower end-use market demand. Finally, the impact from weakening foreign currencies, primarily in emerging regions, has resulted in a year-over-year decrease in income of about $15 million. This lower demand, coupled with the currency effects, was impactful to our year-over-year earnings and is expected to continue for the balance of the year.

Looking ahead, the company is expecting continued raw material cost inflation in the fourth quarter, but at a more modest year-over-year rate given the inflation spike that occurred in the fourth quarter 2017. Management expects margins to be comparable with the fourth quarter 2017 in aggregate.

Fourth quarter EPS are expected to be in the range of $1.03 to $1.13, compared with consensus estimates calling for $1.34 in EPS and $3.74 billion in revenue.

Shares of PPG were last seen down 10% at $98.59, with a consensus analyst price target of $120.20 and a 52-week trading range of $99.06 to $122.07.