PPG Industries Navigates Demand Weakness with Strategic Moves
PPG Industries, Inc. is currently facing challenges from weak demand, particularly in Europe, yet the company is leveraging its pricing strategies, manufacturing efficiencies, and acquisitions to navigate these headwinds. Over the past year, PPG’s shares have decreased by 24% compared to a 5.6% drop in the Zacks Chemicals Specialty industry.
Let’s explore why retaining PPG stock could be a prudent decision at this time.
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Strategic Cost and Pricing Actions Support PPG’s Position
PPG Industries has initiated a cost-cutting and restructuring strategy while optimizing its working capital. These initiatives are expected to generate significant cost savings and support PPG’s overall financial stability. In the fourth quarter of 2024, the company reported an additional $15 million in structural cost savings. For full-year 2025, PPG anticipates around $45 million in restructuring savings (net of stranded costs). Additionally, a cost reduction program is underway, projected to result in $60 million in pre-tax savings in 2025, primarily targeting structural costs in Europe and other global markets.
To combat the effects of cost inflation, PPG is also increasing prices across its business segments. There has been notable progress in improving consolidated segment margins, evidenced by the ninth consecutive quarter of EBITDA margin expansion reported in the fourth quarter of 2024, showcasing PPG’s commitment to enhancing profitability.
Moreover, PPG is focused on inorganic growth through value-generating acquisitions. The contributions from recent acquisitions, including Tikkurila, Worwag, Cetelon, and Arsonsisi’s powder coatings manufacturing business, are expected to bolster revenue streams and performance.
Additionally, PPG is dedicated to maximizing shareholder returns. In 2024, the company returned $1.4 billion to shareholders through dividends and repurchases, paying out $620 million in dividends and repurchasing $750 million worth of shares. PPG’s solid financial performance is underscored by an operating cash flow of approximately $1.4 billion in 2024.
Weaker Demand Continues to Impact PPG’s Stock Performance
Despite these strategic efforts, PPG is still exposed to soft demand conditions. For instance, lower automotive OEM build rates and sluggish industrial production in the United States and Europe adversely affected sales volumes in the Industrial Coatings unit during the fourth quarter. Consumer confidence continues to wane in Europe, directly impacting demand. The automotive sector experienced a notable decline in production, and weak build rates in both Europe and the United States are expected to persist into the first quarter of 2025.
Looking ahead, PPG predicts that global industrial production will remain depressed in the first quarter, particularly in the U.S. and European markets. The company forecasts a low to mid-single-digit percentage decline in sales in the industrial coatings segment, reflecting ongoing challenges in the industry and limited organic growth opportunities.
PPG Industries, Inc. Price and Consensus
PPG Industries, Inc. price-consensus-chart | PPG Industries, Inc. Quote
PPG’s Zacks Rank & Other Noteworthy Stocks
Currently, PPG holds a Zacks Rank #3 (Hold).
In the Basic Materials sector, other noteworthy stocks include Carpenter Technology Corporation (CRS), DRDGOLD Limited (DRD), and Idaho Strategic Resources, Inc. (IDR). Carpenter Technology has a Zacks Rank #1 (Strong Buy), while DRD and IDR are rated as Zacks Rank #2 (Buy). To see the complete list of today’s Zacks #1 Rank stocks, you can click here.
The Zacks Consensus Estimate for Carpenter Technology for the current fiscal year is set at $6.95, representing a 46.6% year-over-year increase. Carpenter Technology has exceeded Zacks Consensus Estimates in the last four quarters, achieving an average earnings surprise of 15.7%.
For DRD, the current-year earnings estimate stands at $1.06 per share, indicating a 29.3% year-over-year rise. DRD’s shares have surged approximately 93% in the past year.
Idaho Strategic Resources has a current-year earnings estimate of 78 cents, suggesting a 16.4% year-over-year increase. IDR has surpassed earnings estimates in three of the last four quarters, with an average earnings surprise of 77.5%. Its shares have risen around 91% within the same timeframe.
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PPG Industries, Inc. (PPG): Free Stock Analysis report.
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This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
