PPG Industries Inc. (PPG) forecasted its first-quarter 2011 earnings driven by better-than-expected European volumes and expects the trend to continue in the next quarter, allowing the company to raise prices of some products.
For first-quarter 2011, PPG expects earnings to be in the range of $1.30 to $1.35 per diluted share compared with 69 cents per diluted share and 18 cents per diluted share in the first quarters of 2010 and 2009, respectively.
Recently, PPG also entered into an agreement with Equa-Chlor Inc. to acquire its manufacturing operations for an undisclosed amount. The deal is expected to close in the first half of 2011.
The acquisition will not only fortify PPG’s chlor-alkali and derivatives business in the Western United States but also allow the company to access Equa-Chlor’s railcars, which will help it to cut its logistics costs. Equa-Chlor’s advantageous geographic location will also enable PPG to realize administrative synergies and reduce transportation costs in the U.S. The deal is expected to be accretive to earnings and generate positive cash flow from operations in 2011.
In January, PPG released its fourth-quarter results for 2010. The company’s adjusted net income was $207 million or $1.25 per share in the fourth quarter of 2010 versus $144 million or 86 cents per share during the fourth quarter of 2009, surpassing the Zacks Consensus Estimate of $1.13 per share.
Net sales for the quarter were $3.4 billion, up 9.7% year over year, outperforming the Zacks Consensus Estimate of $3.3 billion. The improvement in the results was attributed to the company’s expansion in high-growth emerging markets, successful cost reduction initiatives and gradual industrial recovery worldwide, partly offset by rising raw material costs and disappointing trends in the construction markets of the developed economies.
Looking ahead, the company expects the global economic recovery to strengthen, driving volume increase for PPG, which should leverage into higher earnings through a continued cost focus.
Strong fourth-quarter performance along with successful adoption of growth strategies and their meaningful implementation keep us confident about the company. In addition, the macro economy and the concerned industry are also showing signs of recovery.
PPG Industries, however, faces stiff competition from privately held Akzo Nobel N.V and EI DuPont de Nemours & Co. (DD).
PPG Industries has a Zacks #3 Rank (Hold) in the short term and a long-term Neutral recommendation on the stock.
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