Why you should keep PPG Industries (PPG) in your portfolio

PPG Industries, Inc. PPG benefits from pricing action, increased production efficiency, cost discipline and acquisitions amid headwinds from weak demand, particularly in Europe.

The company’s shares are down 8.9% for the year, compared with the industry’s decline of 10.6%.

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Let’s find out why this Zacks #3 (Hold) stock is worth holding right now.

Cost and pricing actions, acquisitions drive PPG

PPG Industries benefits from pricing measures, production efficiencies, cost-cutting activities and efforts to grow its business through acquisitions.

The company is implementing a cost cutting and restructuring strategy and optimizing the need for working capital. The savings from these restructuring initiatives will be a tailwind for the company. PPG Industries has undertaken extensive restructuring efforts to reduce its cost structure, focusing primarily on regions and end markets with weak business conditions. The company achieved additional savings of $8 million in the first quarter of 2024. It expects an additional $7 million to $9 million in restructuring savings in the second quarter of 2024 and approximately $35 million in full-year 2024.

PPG Industries is also increasing selling prices across all of its business segments to offset the impact of raw material and other cost inflation and increase profitability. Significant progress was made in increasing the segment’s consolidated margins. The company achieved segment margin growth of 60 basis points in the first quarter of 2024 compared to the same period in 2023. Notably, the first quarter was the sixth consecutive quarter of year-over-year margin growth. Pricing action will likely continue to support margins in the second quarter.

The company also undertakes activities aimed at inorganic business development through value-creating acquisitions. The contribution from acquisitions is expected to be reflected in its results. Acquisitions including Tikkurila, Worwag and Cetelon are likely to contribute to its earnings.

PPG Industries remains committed to increasing shareholder returns through the use of cash. It has an impressive history of returning cash to shareholders through dividends and share buybacks. The company has consistently increased its annual dividend for 52 years in a row. It repurchased shares worth approximately $150 million and paid a dividend of $153 million in the first quarter of 2024. The board also increased share repurchase authorization by $2.5 billion to approximately $3.4 billion.

Weaker demand

PPG remains exposed to weak demand conditions in Europe and China. Industrial production remains low, mainly due to cautious consumer purchasing patterns in Europe and the slow economic recovery in China. Additionally, weakened demand in certain end-use markets in the United States contributed to challenges. PPG is reporting lower auto refinish coatings sales volumes in the United States, due in part to weaker body shop activity. Geopolitical tensions in Europe resulting from the Russia-Ukraine conflict further weakened demand.

While the company is seeing higher demand for its products in China, lower overall demand in Europe remains a challenge. The company expects global industrial production and demand in Europe to remain subdued in the second quarter of 2024. The softness of industrial coatings is expected to continue in the second quarter due to sluggish global industrial production.

Stocks to consider

The better-ranked companies in the basic materials area include, among others: Carpentry Technology Company CRS, Axalta Coating Systems Ltd. AXTA i ATI company ATi.

Carpenter Technology is currently sporting a Zacks Rank #1 (Strong Buy). CRS has surpassed the Zacks Consensus Estimate in three of the trailing four quarters while matching it once, with an average earnings surprise of 15.1%. The company’s shares are up about 89% over the past year. You can see complete list of today’s Zacks #1 ranked stocks here.

A Zacks Rank #1 Axalta Coating Systems has an expected earnings growth rate of 26.8% for the current year. Over the last 60 days, the consensus estimate for AXTA’s current-year earnings has been revised upwards by 5.9%. The company’s shares have gained about 8% over the past year.

ATI is currently sporting a Zacks Rank #2 (Buy). ATI has topped the Zacks Consensus Estimate in each of the trailing four quarters, with the average earnings surprise coming in at 8.3%. The company’s shares are up about 34% over the past year.

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